Why Consumer Packaged Goods Companies Need a Strategic Approach to Transportation

Getting products to retailers is increasingly an uphill battle for consumer packaged goods (CPG) companies.

Eighty percent of CPG supply chain leaders say transportation is now their greatest worry, according to a new report by The Boston Consulting Group (BCG) and the Grocery Manufacturers Association (GMA).

A Hard Road: Why CPG Companies Need a Strategic Approach to Transportation is based on the 2015 BCG/GMA Supply Chain Benchmarking Study, the ninth in GMA’s benchmarking series on manufacturers’ outbound supply chain logistics.

Since the last BCG/GMA survey in 2012, CPG companies’ freight costs have risen to 14 percent, reversing all other supply chain cost-saving efforts.

Already, the CPG industry spends about $15.5 billion each year on transportation. “Supply chain leaders are caught between two challenging transportation trends, as they either must pay more to meet service-level expectations or sacrifice speed and reliability for cost efficiency,” says Daniel Triot, Senior Director of the Trading Partner Alliance of the Food Marketing Institute and Grocery Manufacturers Association.

“That is hardly a prescription for long-term success”

The report shows that driver shortages and chronic capacity squeezes, along with growing congestion and delays, are threatening delivery times, inventory management, and service levels. Aging transportation infrastructure takes a big part of the blame.

“Supply chain leaders used to view transportation problems as cyclical, but these problems are here to stay,” says Peter Dawe, a BCG partner and coauthor of the report.

“Now we’re seeing such an acute capacity shortage that it can be near impossible to get loads on some lanes moving, transportation is becoming a strategic planning consideration, not a simple commodity to be sourced”

A variety of tactics, when organized as a part of a comprehensive plan, can go a long way toward overcoming the challenges. Such tactics include everything from efficiency moves and the choice of ownership model to new partnership approaches (with customers, carriers, and even other manufacturers) and network redesign.

Some CPG companies, such as Procter & Gamble, Bumble Bee, and Land O’Lakes, are already deploying this approach - and achieving results. BCG estimates that implementing a suite of tactics within an integrated approach can lead to a potential cost savings of 7 percent of transportation spending, or roughly $1 billion, industrywide.

“Some CPGs are going back to the fundamentals and making sure all of their systems operate at peak efficiency,” says Elfrun von Koeller, a principal at BCG and coauthor of the report.

“Others are integrating transportation within the supply chain strategic agenda.” Because today’s complex transportation challenges fall beyond supply chain leaders’ traditional purview, making transportation a more important part of the business conversation can go a long way in mitigating its bottom-line impact - which BCG estimates to be as much as 5 percentage points.

By partnering with business unit and enterprise leaders, supply chain leaders can more effectively apply these tactical solutions in a holistic way - and restore and build on the important performance gains of recent years.

“There is no silver bullet, but those CPG companies that recognize and address the need for a comprehensive response will enjoy competitive advantage,” Dawe says.

Related: Transportation, Network Redesign Top Priorities for Consumer Packaged Goods Supply Chain Leaders