LONDON, 4th May 2017 -- Consumer products companies need to collaborate with rivals to unlock new sources of profitable growth amid converging market challenges. That is according to an EY report commissioned by The Consumer Goods Forum:To deliver profitable growth in the world of the new consumer – must your old rivals become your best friends? which finds that the final link in the logistics chain is becoming increasingly inefficient and demands a new collaborative approach.
- Urbanisation: Growth of megacities and resulting congestion are making logistics execution ever more challenging. It’s expected that more than half of the world’s population will move to urban areas by 2050, driving up the economic cost of excessive congestion. The impact on logistics operations will be far-reaching, as shipping and delivery timing could be significantly delayed.
- E-commerce and omni-channel growth: The digital revolution is stimulating more physical options to buy, produce, sell and deliver, and supply-delivery networks are set to become denser. E-commerce will occupy a greater share of retail sales versus brick and mortar sales, driving increased demand for home delivery that is five times the cost of store “click and collect.” As omni-channel deliveries continue and consumers’ expectations increase, the last mile cost will escalate while congestion drives up costs further.
- Environment and regulation: Regulatory fees and transport tolls are on the rise globally. Furthermore, local cities will have low or even zero emission regulations, requiring alternative fuel vehicles. Leading consumer goods manufacturers and retailers will need to rethink their logistics models and networks in response.
- Growing transportation inefficiencies and cost: As truck fill continues to shrink and customers order smaller shipments, transport will become even more inefficient. Today, an average trucktrailer runs at less than 60% full, and at least a quarter of trips are made with an empty trailer. At the same time, transportation costs are expected to continue to rise annually, the result of higher costs associated with insurance, tax and fuel. Coupled with this, a shortfall in available drivers is driving up the cost of wages.
The report details the three key collaboration opportunities that exist for manufacturers:
- Manufacturer logistics hub: Multiple manufacturers or suppliers share warehouse and logistics. This optimises overheads and inventory, and maximises delivery frequency and vehicle utilisation due to high product mix.
- City/market retail and logistics consolidation centre: Multiple retailers share direct costs in collaboration with suppliers for effective order fulfillment. This optimises overheads and inventory, and improves delivery frequency and vehicle utilisation.
- Independent collection point: This allows flexibility for consumer and minimises home deliveries; similar patterns were observed in locker or shared vehicle services-based delivery. This also maximizes vehicle utilisation.
Matthew Burton, EMEIA Omni-Channel Leader, Supply Chain & Operations, EY, says: “The rise of omni-channel, combined with more onerous regulatory requirements and urbanisation, is forcing companies to radically rethink routes to market. Rather than looking to innovative solutions such as self-driving trucks and robotics to address disruption – which could be years away from mass adoption – collaboration offers the prospect of much faster benefits. By pooling assets and expertise through new relationships with rivals, companies can get ahead of the market and dramatically improve efficiency”.
Ruediger Hagedorn, CGF Senior Manager – End-to-End Value Chain, says: “Some consumer products companies are already driving growth through small-scale collaboration. However, there is more work to be done and consumer products companies need to find the right business model to support collaboration and help drive efficiencies to new levels. We very much value the need for collaboration in key areas of the value chain and it is great to see what can be achieved when organisations work together for the benefit of the industry, consumer and planet”.
About The Consumer Goods Forum
The Consumer Goods Forum (the CGF) is a global, parity-based industry network that is driven by its members to encourage the global adoption of practices and standards that serves the consumer goods industry worldwide. It brings together the CEOs and senior management of some 400 retailers, manufacturers, service providers and other stakeholders across 70 countries, and it reflects the diversity of the industry in geography, size, product category and format. Its member companies have combined sales of EUR3.5 trillion and directly employ nearly 10 million people, with a further 90 million related jobs estimated along the value chain. It is governed by its board of directors, which comprises 50 manufacturer and retailer CEOs. For more, please visit: www.theconsumergoodsforum.com.
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About EY’s Global Consumer Products Sector
Consumer products companies are operating in a brand-new order, a challenging environment of spiraling complexity and unprecedented change. Demand is shifting to rapid-growth markets, costs are rising, consumer behavior and expectations are evolving and stakeholders are becoming more demanding. To succeed, companies now need to be leaner and more agile, with a relentless focus on execution. Our Global Consumer Products Sector enables our worldwide network of more than 17,500 sector-focused assurance, tax, transaction and advisory professionals to share powerful insights and deep sector knowledge with businesses like yours. This intelligence, combined with our technical experience, can assist you in making more informed, strategic choices and help you execute better and faster.
Sr Manager, Communications
The Consumer Goods Forum
EY Global Media Relations
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