CPGs Look to Modify Supply Chain Networks
October 21 2020
has wreaked havoc with global retail and consumer goods supply chains,
exposing critical shortcomings and leaving many companies scrambling to
identify and invest in the right capabilities for the long-term. For
many senior executives, supply chains have taken on new strategic
To better understand how COVID-19 is transforming the retail and
consumer goods networks, Bain & Company and Microsoft joined forces to
examine supply-chain related investment plans and priorities at 70
companies. The research, It's Time to Build Resilience into Retail and
Consumer Goods Supply Chains, revealed three critical changes in retail
and consumer goods supply chain management.
The most striking is a new willingness among senior executives to make
trade-offs between network cost, speed and resilience. Many who once
viewed their supply chain as a cost center now see it as a strategic
capability. Of the companies surveyed, 90 percent plan changes to their
supply chain networks —and more than 40 percent expect to increase their
total supply chain investment with the primary goal of increasing speed,
agility and resilience.
“When COVID-19 paralyzed global supply chains, it also triggered a
massive surge in online sales—a double shock that few retailers and
consumer goods companies were prepared to handle,” said Mikey Vu, a
partner in Bain & Company’s Retail practice and co-author of the report.
“Our research revealed that companies with supply networks designed for
maximum cost efficiency were unable to respond quickly to these sudden
supply shocks and demand spikes. The prize of efficiency came at the
cost of resilience.”
As a result, boards and executive teams are now taking a hard look at
the lessons learned and reprioritizing their goals. The study shows the
share of executives rating cost efficiency as one of their top two
supply chain goals fell by 13 percentage points, while agility rose by
24 percentage points.
“We are seeing a significant shift in supply chain strategies as our
customers adapt to meet the demands caused by COVID-19. While cost
reduction and efficiency remain a critical priority, we are seeing
supply chain agility rise to the top of the list for executives. This
need for agility has prompted an overwhelming consideration for
cloud-based architecture,” said Shelley Bransten, CVP Consumer Goods &
Retail Industries at Microsoft.
Successful retailers and consumer goods companies have started
constructing flexible networks of suppliers and manufacturing partners.
That means setting up alternative suppliers, manufacturing sites and
assembly nodes, and making the most of Industry 4.0 tools to optimize
costs, improve visibility across the network and accelerate reaction
times. As they take those steps, leadership teams are making critical
tradeoffs between efficiency, convenience and responsiveness to improve
In a second key shift, retail and consumer goods leadership teams are
starting to include top supply chain managers in corporate
decision-making, acknowledging that supply chain data and insights are
vital to their business success.
Of the companies surveyed, 47 percent expect their supply chain
organizations to provide input to most or all major strategic decisions,
such as merchandising, store operations and product strategy—an increase
of 17 percentage points over the 12 months prior to COVID-19.
The reason is clear. Resilience requires lifting the opaque veil that
shrouded yesterday’s supply chains. Leading retailers and consumer goods
companies are using cloud-based supply chain applications and other
tools that can share information with their networks of suppliers and
Third, the research also shows these companies are focusing
investments in three important areas to bolster supply chain speed and
fulfilment. Before the pandemic, retailers faced growing pressure to
fulfill digital orders faster. According to the study, nearly 60 percent
of retailers and consumer goods companies now plan to increase their
investment in multiple facilities that can respond to online orders.
Predictive planning and
demand forecasting. To improve supply chain resilience, retailers and
consumers goods companies need better visibility into network
constraints and bottlenecks, as well as additional channels to avoid
blockages. The findings show 56 percent of companies in these two
sectors plan to increase investments in predictive planning and demand
Flexible Operations. To
weather future supply and demand shocks, leading retailers and consumer
goods companies are seeking to boost supply chain flexibility. Many are
teaming up with partners to speed fulfilment and delivery. Bain and
Microsoft found that 53 percent of retailers and consumer goods
companies are planning to increase investments in flexible operations.
All three capabilities were
important before COVID-19, and now have become critical to cope with an
on-going surge in online sales.
While many of the companies we surveyed said they are confident about
transforming their supply chains for a new era, they are also grappling
with a number of obstacles that may slow progress. Forty percent of
respondents admitted they did not yet have the internal solutions or
external partners they need to achieve their goals. And many lack the
resources to invest in resilient supply chains.
Other hurdles include merchants that object to new decision-making
models and archaic, in-house data systems that make it difficult to
improve supply chain visibility. Companies will also need to coach
supply chain managers on bringing strategic insights to the table, and
encourage leadership teams to incorporate new data sets and metrics into