Increasing power of retailers

By leveraging geographical spread and strong consumer relations, retailers are able to demand more and more from suppliers in terms of lower costs and higher service levels. As with the CPG companies, the retailers are also chasing the twin priorities of constant shelf availability (by synchronizing stock flows to the store) and reduction of excessive in-store stocks and labor, in order to cut total retail supply costs. In spite of a strong focus on reducing out-of-stocks at the shelf, the numbers below indicate an opportunity to bring this metric up, without which both retailers and CPG companies stand to lose business. Channel- and account-specific requirements such as new labels and pallet size, diverse ways of sharing point of sale (POS) data, and (most recently) radio frequency identification (RFID) of products mean extra time, resource, and cost pressures which the CPG companies cannot resist.

Rising inventory
Consumer fragmentation has also driven CPG manufacturers to have wide assortments within categories. With higher service level expectations, most manufacturers have a tendency to build finished goods inventory to be able to respond better. Combined with a "make to plan" business process, inventories of raw materials and work in progress are also at higher levels. While most industry segments have reduced inventory levels gradually with improved supply chain processes, the CPG industry is still saddled with higher inventory and the associated inefficiencies.