Limitations of Traditional CPG Supply Chains

Instead of taking a holistic view of the supply chain, most companies are more concerned about local metrics and local departments; they lack of broader participation and commitment during critical phases such as forecasting and sales and operations planning. The mind-set is still of firefighting and knee-jerk reactions. Typical examples include manufacturing pushing for volume to keep their metrics of cost per unit and capacity use in control; and sales going out independently and striking promotion deals with retailers and distributors, without properly understanding the supply constraints. The infamous hockey stick effect (see figure 1) is prevalent in many CPG companies, and indicates low supply orientation and disparate management within their own supply chains.

Figure 1. The hockey stick effect.

Lack of flexible processes for dealing rapidly with change
Typically, traditional supply chain management (SCM) strategies and systems work best during steady states, but respond poorly during new product ramp-ups, surge demands, or a short lead time promotion. With shrinking product lifetimes and increasing product mix and distribution channels, traditional supply chains are slow to match the requirements of dynamic product portfolios. Excessive focus on asset or labor use, along with a lack of proactive constraint management practices and dynamic information feedback, combine to slow response times to the inevitable changes in the market place as well as with internal processes.

Traditional supply chains do not consider essential demand signals
The traditional demand indicator of forecasts frozen ahead of time can be too distorted, and does not take into account recent changes in actual demand. This practice, in conjunction with inherent uncertainty in forecasts, can add costs and unwanted inventory for manufacturers.