Countering Supply Disruptions: Short and Long-Term Fixes for Consumer Products Companies

Consumer goods companies should evaluate their operations for opportunities to implement artificial intelligence and robotic, process and automation solutions to speed the ability to recognize changes in customer habits and make actionable decisions.

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The global supply chain malaise continues to hamper consumer products companies’ ability to get in-demand products in front of the right consumers at the right time. Despite peaking near the end of the third quarter, shipping container rates remain nearly three times higher than a year ago on average. With lead times continuing to rise, importers are paying significantly more for guaranteed on-time shipments.

While some of the largest consumer products importers have taken extreme measures to mitigate shipping container availability and congestion concerns, such as chartering their own ships or outfitting bulk shipping vessels to carry merchandise across the ocean, mid-sized and small businesses don’t have the scale to pursue such options. Those businesses need to approach supply disruption with short-term and long-term strategies in mind.

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Leveraging data strategy is imperative for short-term results

The short-term reward for successfully navigating current supply chain conditions is the ability to maximize profits during what is likely proving to be a strong holiday season. U.S. consumers enter the holiday shopping season armed with strong household balance sheets, with excess personal savings of approximately $1 trillion. Increased mobility, accelerated child credit payments and pent-up demand after nearly 18 months of lockdowns add to momentum for consumer goods companies entering the final quarter of the year. However, long lead times mean that most products needing to come over the ocean already need to be in route to make it in time for the holidays. So how can consumer goods companies make the most of this environment?

A strong demand infrastructure will be imperative to maximizing profits over the next few months. Savvy consumer goods companies collecting internal data from customers’ sales and marketing activity to determine which products consumers are willing to pay more for and how much they are willing to pay will have the leg up. For businesses trying to catch up, off-the-shelf data science and business intelligence tools are allowing small and medium-size businesses to process everything from third-party data sources to online reviews to forecast demand for product categories and identify blank spaces and optimal price points.

Connecting consumer data into operational planning and supply sources also helps consumer goods companies stay responsive to a rapidly changing consumer environment. Some consumer goods companies have softened the impact of higher freight charges by using demand planning to consolidate orders into full container loads rather than partial. Once product is imported, operational planning allows companies to prioritize markets and customers to make sure inventory gets to the end customers most likely to purchase, while also avoiding empty shelves in stores. This will also help consumer goods companies evaluate domestic footprints by bringing product storage closer to demand centers. Optimizing distribution nodes will help cut lead times to the end consumer while also minimizing domestic freight costs.

Sharing data across the supply chain has never been more important. Unlike their larger counterparts, many midsized companies only make up a segment of the overall supply chain, relying on complex networks of manufacturers, distributors and retailers. Seamless sharing of information between customers and vendors allows those businesses in the middle of the supply chain to keep their stakeholders nimble. 

Stay nimble in the long game

While container imbalances, inflated shipping rates and lead times will ease as the global supply chain adapts to the pandemic-related disruption, a return to pre-pandemic normalcy is unlikely. Mid-size consumer goods companies should prepare their business models to stay nimble to adapt to the changing environment to prepare for 2022 and beyond. 

Consumer goods companies should evaluate and negotiate existing contractual arrangements to ensure terms accommodate the new business environment. In addition, businesses should look at surge pricing at third-party warehouses to ensure they have the ability to bring in inventory even earlier to avoid delays for future holiday seasons. Likewise, negotiating credit arrangements to allow for in-transit inventory and larger-portion borrowing bases will give consumer goods companies financial flexibility in periods of supply chain congestion.

Diversifying sourcing can also add flexibility and reduce risk to disruption. By sourcing from different parts of the world, consumer goods companies won’t be overly exposed to one particular outbound port. With tariffs becoming increasingly popular as a policy tool, diversifying supplier geography also gives consumer goods businesses flexibility around potential geopolitical risks. The concept of nearshoring isn’t new, but producing products closer to the end consumer allows companies to further reduce lead times and respond to demand in real time. While infrastructure and labor costs are the traditional concern, supply chain risks may change the calculus. 

Continual investment in technology will be imperative for consumer goods companies to survive and grow. Whether embracing a data strategy for short-term profitability or undergoing a digital transformation effort to prepare for the long term, technology will play a key intermediary between customer centric marketing strategies and operational efficiencies. Consumer goods companies should be evaluating their operations for opportunities to implement artificial intelligence and robotic, process and automation solutions to speed their ability to recognize changes in customer habits and make actionable decisions with confidence.