Why margin management is the 'talk of the town' in fast moving consumer product supply chains…

Recent discussions with consumer goods companies reveals that margin management is becoming an imperative that goes far beyond just taking out cost of goods sold, or using full truck loads on shipment.

CPG companies are seeking to continuously drive profit margins on the products they sell in retail stores – and the world of retail is continuing to become more complex as we speak.  One executive I spoke with recently talked about the  management  of multiple forms of data to make better decisions that can be driven back into supply chain planning and decisions.  For instance,  can you take Nielsen information on consumer preferences, demand information from regional store locations, and use this data to identify and create pools of need for specific types of products?  Can we see which consumers are out there  and then be able to interpret and build demand signal that drives availability to this pocket of consumers that will result in a full price purchase versus a discounted purchase?  And can we then be able to pull in this demand signal, and integrate it into our transportation, warehousing, and manufacturing/planning and control decisions to ensure the product is produced and delivered in time?

The real challenge for organizations is not just about pulling the data for these types of decisions, but to look at  the interaction of all the decisions companies make throughout the different silos of customer service, product promotion, distribution, transportation, inventory management, and production – as well as the supply base.  This in turn begins to identify sources of loss in the supply chain that are not valued by the customer – and being willing to make tough decisions regarding capacity changeovers at the plant that may be less than optimal for production runs, marketing practices that may be counterintuitive but make sense from a margin-driven perspective, product mix and allocation decisions by region that are more aligned to demand, and carrier models that impact the entire business, and may even drive collaboration with other CPGs to ensure fuller trucks and improved delivery.  This executive stated it quite nicely:     How come not all our kids go to college?  The answer is that  not all kids have the same margin structure.  We understand that but we don’t always use the same logic when we think about product decisions in the supply chain…