For years, prices around the world have rising moderately. And we expect that; it’s part of how economics and business works. The difference is, now we are currently experiencing some of the highest spikes in a decade, spurred by supply chain shortages and large doses of government stimulus.
The consumer price index (CPI) increased by 7.5% from February 2021 to February 2022, marking the biggest year-on-year increase in the cost of goods and services we’ve seen in 40 years. From food to labor to transportation to housing, everything is going up.
Goldman Sachs’ chief economist Jan Hatzius warned in a recent client memo that the ongoing trend appears “more concerning” than initially thought. While experts can’t seem to agree on exactly how long it will take for prices to stabilize, inflation is a reality that businesses around the world must sink or swim in.
How inflation is hitting consumer goods
Consumer demand for goods is high right now, but so are post-pandemic labor shortages and supply chain problems. We’re seeing prices rise on food and household goods; average net income margins of about half of the 28 Fortune 500 food and consumer goods manufacturers have risen compared to pre-Covid levels.
Major players in the consumer goods space are raising prices to defend against profit margins shrinkage, hoping buyers will still opt for their favorite brands despite the increased cost.
What can CPGs do right now?
Unfortunately, there is no “quick fix” to mitigating the immediate effects of inflation. But a key to stronger defenses against inflation now and in the future lies in something businesses can manage and control – their supply chains. We can’t change the way the economic winds blow, but CPG companies can take steps to make their supply chains more resilient to absorb the effects of inflation – and other unforeseen issues – as much as possible.
Accuracy, efficiency, speed and agility are the backbone of a strong supply chain. Making those words actionable takes an integrated strategy to managing and sharing data. Relying on legacy systems that silo data wastes potential and puts businesses at a major disadvantage when they need to innovate and make changes quickly, as many CPGs need to right now. Here are some key goals to consider when shaping supply chain-strengthening strategies:
- Increase accuracy: CPGs work with a whole range of product identifiers, like dimensions, case pack, size and weight, etc. as goods move from factory to distribution to retail channels. Streamlining the data supply chain with data quality management, approvals and regulatory controls can make a big difference in accuracy and avoiding expensive mistakes.
- Become more efficient: An integrated solution and having an authoritative source of data across all data domains in the supply chain allows CPGs to increase efficiency and reduce labor – especially important given the labor shortages we are experiencing in the post-pandemic world. Upping efficiency gives data and analytics teams more time to devote to growing the business and improving their analytics and processes. One way to become more efficient is to collaborate on pre-competitive areas through platforms like The Consumer Goods Forum.
- Gain speed and agility: Many CPGs are turning to innovation to mitigate price rises. Some are getting creative, such as introducing smaller sized packaging for goods. While this kind of innovation can be a good solution, it takes operational and workflow efficiency to pull off, considering distribution, sourcing, marketing and logistics – all while staying within data requirements and timelines.