A recent report published by The Boston Consulting Group (BCG) and the Grocery Manufacturers Association makes clear the supply chain challenges consumer packaged goods (CPG) shippers are up against, with some of these challenges, specifically transportation-related ones, gaining traction in recent years.
The report, entitled “A Hard Road: Why CPG Companies Need a Strategic Approach to Transportation,” was based on interview and survey feedback from supply chain leaders at 40 CPG companies. BCG said this report is the ninth in its benchmarking series on manufacturers’ outbound supply chain logistics.
The single largest obstacle for more than 80 percent of surveyed shippers in the report was transportation, which was a far cry from the last time this report was published in 2012, when it did not elicit much concern.
But in 2015, things on the transportation front clearly are different for CPG shippers, with the report explaining since the last time this survey was conducted freight costs for CPG shippers’ companies have increased 14 percent, with the industry on the hook for roughly $15.5 billion on transportation annually, which the report maintains has essentially reversed other supply chain cost-saving efforts.
Chief among the many transportation challenges CPG shippers are facing as outlined in the report are:
-the capacity crisis in the form of the ongoing truck driver shortage, coupled with escalating costs as a result in the form of higher freight rates, as well as deteriorating infrastructure; and
-these aforementioned issues and others are having a negative impact on delivery times, inventory management, and service levels
Challenges and issues like this have created difficult decisions for CPG shippers in that supply chain leaders, according to the report, are being forced to make trade-offs by having to pay more to fulfill service level expectations or seek cost efficiencies, which often occur at the expense of speed and reliability. This dilemma becomes even more apparent, when one considers that only one-third of CPG companies have been able to reduce transportation costs over the last two years, the report stated.
Elfrun von Koeller, a BCG principal and one of the report’s coauthors, said the fact that transportation was not mentioned much in the previous report in 2012, due largely to the fact that it was viewed as a service that “was there” and needed to be used to move product and not top of mind.
“But since then, we have seen this huge shift in recent years from transportation not being a relevant topic to the biggest concern everyone has,” she said.
On top of the myriad transportation issues cited in the report, the decline in fuel prices does not appear to be entirely favorable for CPG shippers, as they tend to be offset by increases in other transportation costs. This was made even clearer by 83 percent of the report’s respondents that said they expect linehaul rates, which comprise more than 70 percent of total transportation spend, to rise.
As for the best ways to make transportation operations more fluid and efficient for CPG shippers, the report’s findings take what can be viewed as a multi-pronged approach. This approach includes things like:
-selecting the right ownership model, shipping mode, contracting approach, and processes, with 59 percent of CPG companies managing and executing transportation in house, and 41 percent using an outsourced logistics approach (with 3PLs or 4PLs), despite higher costs;
-partnering with customers, carriers, and other manufacturers for things like customer pickup, collaboration with other companies to share warehousing or truck space, and combining loads for a full truckload. The report added that most CPG shippers surveyed have seen benefits of collaborating with retailers in the form of higher order volumes and accuracy by conferring with retailers in the order process;
-increased efficiency through things like boosting load size for capacity utilization, reducing packaging weight, improving truck turnaround times, and reducing empty miles, among other efforts; and
-engagement by becoming a shipper of choice as a strategic decision by CPG shippers to work with carriers to deal with tight capacity by providing carriers with predictable volume estimates, minimizing turnaround times, and providing 24-hour access to distribution centers, among other efforts
With CPG shippers now looking at transportation as a strategic planning consideration and not a commodity to be simply sourced, it makes them take a different approach though the steps cited above, as well as others.
“When CPG shippers now do a network redesign, they are thinking about what the key transportation lines closest to a facility and not just total miles,” said BCG’s von Koeller. “It has more to do with what is an attractive lane for a shipper in terms of proximity to DCs or plant operations, what days to ship and managing order patterns to make sure shipping is happening on days when capacity is actually available.”
The practice of shippers sharing forecasting patterns with carriers is also helping to drive efficiency and productivity, she noted.
In terms of CPG shippers leveraging best practices to make needed changes and be better equipped to meet transportation challenges, von Koeller said that good companies are pulling the levers they need to pull to apply them to manage transportation.
“Transportation as a priority is moving up higher as part of companies’ organizational priorities,” she noted. “There are still companies that think this is something that is temporary and will go away but they are in the minority at this point.”