The FINANCIAL — 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.
The findings highlight four key areas of impact on logistics operations:
Urbanization: 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 optimizes overheads and inventory, and maximizes delivery frequency and vehicle utilization due to high product mix.
City/market retail and logistics consolidation center: Multiple retailers share direct costs in collaboration with suppliers for effective order fulfillment. This optimizes overheads and inventory, and improves delivery frequency and vehicle utilization.
Independent collection point: This allows flexibility for consumer and minimizes home deliveries; similar patterns were observed in locker or shared vehicle services-based delivery. This also maximizes vehicle utilization.
Matthew Burton, EMEIA Omni-Channel Leader, Supply Chain & Operations, EY, says:
“The rise of omni-channel, combined with more onerous regulatory requirements and urbanization, 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 organizations work together for the benefit of the industry, consumer and planet.”