Four Steps for CPG Supply Chain Network Optimization

Businesses and individuals will struggle to associate the words ‘high-point’ with 2020; amazing as it sounds, that has been the case for the consumer packaged goods (CPG) industry as a whole. In fact, the CPG sector grew 19% in 2020 according to NC Solutions – a firm that has been providing research-based insights for more than 10 years to help brands target the right segments on the basis of in-store purchase behaviors, optimize in-flight campaigns, and measure the outcomes.

The upward trend on its own, and in comparison to the years prior to 2019, has not been predictable or uniform. While some companies enjoyed an unprecedented surge in demand, others suffered drastic sales declines.  There were rapidly deployed workforces and simultaneous lay-offs due to lockdowns.

Despite all this turmoil, the CPG industry overall is definitely in a much better place to take on an uncertain future when compared to other sectors in this brave new world.

Changing Priorities in Changing Times

The momentum of CPG companies has historically comprised gradual shifts in priorities as business changes are observed and accounted for. Incoming waves of wax and wane in the early days of 2020 caused concern for most companies who wanted to ensure the health and safety of customers and employees. Safeguarding cash balances and optimizing supply chains came later in the year; later still were efforts to build new supplier networks, optimize existing networks, and make them all more resilient.

Now, with western economies largely emerging from the crisis, attention has again turned, towards return to business and recovery. Business leaders across the CPG sector are starting to see some measure of an economic rebound; this is also the moment when they are beginning to consider long-term strategic moves as the future unfolds and looks much different than what they had envisioned last year at this time.

Cost and Availability: The Key to Customer Retention

Most consumers will need some time to recover and return to more normal levels of spending. Consumer demand for toilet tissue, cleaning products, bottled water, and personal protective equipment (PPE) has just about returned to a normal level.  McKinsey projects that 40% of US buyers are now more mindful of where they spend their money, while 31% are choosing less expensive products.

Consumer spending is also predicted to continue to focus more on essentials, groceries, household supplies, and less likely to focus on PPE like masks and gloves.  Consumers are also being mindful about their spending with regard to savings – the personal savings rate in the US amounted to 13.7% at the end of 2020, compared to 11% in 1960.

Many consumers, failing to find their favorite products on store shelves in 2020, changed to new brands that were more readily available. Driven largely by value and availability, more than 60% of global consumers tried a different brand or shopped at a different retail outlet. Trends like online ordering and delivery and remote working were all accelerated, leading to the digitalization of some business processes – changes that were previously projected to take place over decades happened in days.

So success for an omnichannel brand also depends on the right value proposition for CPG products and efficient supply chain planning towards supply chain network optimization. How much can the product command in terms of price and at what cost? What CPG supply chain management initiatives can ensure that the product is available where and when the consumer wants it and what variables are likely to impact that state?

As new consumer behaviours begin to emerge in all areas of everyday life, CPG companies need to use this transition period between the crisis and the new normal to rethink their consumer-decision journey and enhance and improve supply chain efficiency.

The Four Stages of Supply Chain Network Optimization

In a price-conscious CPG market, supply chain managers are desperate to optimize costs and increase supply chain throughput. The increasing number and complexity of sales channels demand end-to-end supply chain visibility as products travel from manufacturing centers to the end-customer; such transparency at the speed of business requires a digital supply chain.

As businesses embark on digital transformation initiatives to improve supply chain efficiency, they will need the right supply chain software to navigate the 4 stages in order to maximize network value.

Stage 1: Connect

End-to-end connectivity across the partner network inevitably concentrates large amounts of information across multiple connections. Facilitating collaboration with other channel partners by forging stronger relationships through efficient and coordinated actions increases end-to-end connectivity. This, in turn, results in increased activity leading to a concentration of information.

While grocers remain important and strategic trading partners, CPG companies will need to connect across various channels, including e-marketplaces and their own web presence. For smaller brands, it becomes a question of finding the channel that best fits their existing or extended distribution model.

Stage 2: Anticipate

Traditional supply chain planning can fail to accurately predict sudden rises or falls in demand as these forecasts are based on historical data. Integration with ‘big data’ systems helps develop a more holistic approach and supports an agile demand plan. CPG manufacturers need to quickly become experts in big data analytics, insight generation, and ROI tracking of investments, particularly for e-marketplaces.

Stage 3: Strategize

Based on the demand forecast, companies would need to respond quickly and efficiently to address production and inventory capacity throughout the supply chain. Factory, logistics partners, and warehouses will have to be coordinated and synchronized to serve multiple goals and partner networks would need to operate in near real time.

All this might require jettisoning legacy services and investing in smarter supply chain software that are designed for faster, point to point communication and at a lower cost.

Stage 4: Control

When a CPG supplier is in a position to manage its demand, production, and inventory, it has more control over its costs, product pricing, and placement. It can take a varied price approach depending on the demands and requirements of a particular buyer. According to Forbes research, the best CPG performers reallocate 2-3% resources per year removing unproductive costs and channelling funds to priority initiatives.

Supply Chain Software to Take on the Next Normal

The lessons learned over the past 14 months  present retail and CPG companies with a tremendous opportunity for improvement of supply chain operations. They can now reinvent themselves for the new normal with more speed, new innovation, and increased agility.

These companies can learn from their own experiences and from each other as they get ready to take on a less predictable future. The right digital investments can help long-term supply chain planning while observing and reacting to consumer behavior and the business environment.

PartnerLinQ by Visionet: Enterprise Connectivity at the Speed of Business

PartnerLinQ is the result of Visionet’s decades-long industry expertise and technology leadership. Hosted on Microsoft Azure, PartnerLinQ is an innovative, process-centric, easy-to-use EDI solution that enables API-led, cloud native integrations. With a simplified B2B communication engine that includes EDI, AS2, SFTP, and real-time APIs, PartnerLinQ is a fully integrated platform and easily handles both standard and proprietary file-based formats including custom integrations. PartnerLinQ is well suited for retail, e-commerce, wholesale, transportation, 3PL, as well as distribution, digital and analog partner ecosystems – helping your team achieve operational efficiency and gain real-time supply chain visibility.

The PartnerLinQ team at Visionet has more than 25 years of experience in providing industry-focused leadership in technology, consulting, and in the development of innovative solutions that drive global supply chain transformation from the factory floor to the consumer’s doorstep.

Visionet’s technology practice includes leveraging Azure to build, test, deploy, and manage large-scale enterprise solutions for its clients. So when Visionet set out to build PartnerLinQ, it made perfect sense to build, test, deploy, and manage the PartnerLinQ integration platform from within Azure.

Prepping Up for a Cost Push Inflation

US food makers have been warning about impending price increases over the last few months and since we are all consumers at heart, we can see the evidence at the grocery store. According to NielsenIQ, 50 of the 52 food categories it surveys are reporting higher prices when compared to last year.

This cost push inflation effect can be attributed to a few things: rising commodity prices with the cost of raw materials at its highest in almost a decade, increasing transportation costs, supply chain disruptions, and changing consumer demands.  Acosta’s study on eating habits shows 55% of Americans are eating more at home since the start of the pandemic.

Balancing the Green New Deal with the closure of the Keystone XL pipeline as well as COVID vs consumption are all contributing to a cost push inflation.  The subsequent attack on the Colonial Pipeline directly impacted consumers right at the beginning of the summer travel season. The big question is how businesses can prepare for such unforeseen circumstances, circumstances with real consequences.

Dealing with Cost and Performance Pressures: A Case for a Digital Supply Chain

Disrupted supplies, fluctuating demands, and changing consumer behavior all signal a period of major change for CPG, while events such as an impending cost push inflation will push organizations further towards optimizing costs and reassessing their entire business processes.

While e-commerce continues to gain momentum and smaller and more agile competitors challenge the titans of grocery, the increase in competition has reignited cost and performance pressures like never before. Scale is no longer enough to drive a competitive advantage. More participants plus more channels means more complexity in moving packaged goods from the factory floor to the ‘Bull’s-Eye Zone’ on store shelves.

Modern organizations have worked on ‘lean’ philosophies for decades, but The Economist’s Intelligence Unit reports that almost 60% of its surveyed respondents are looking at changing these strategies and dramatically so. Market participants are more eager to maintain redundancies.  Redundancies in excess capacity and supply chain resilience proved to be more beneficial in 2020 than speed and efficiency.

As a result, the supply chain is no longer being viewed through the lens of being a cost center – rather, supply chain planning has become a strategic imperative and a capability to be invested in.

The Economist’s Intelligence Unit is also reporting that 90% of retail and CPG executives now plan to change their supply chain networks, with more than 40% expecting to increase CPG supply chain investments with a focus on digital agility, supply chain visibility, and resilience.

In short, the very concept of gathering a 360° view of customer information has been unseated by an expanding plan to gather a 360° view of supply chain entities and assets well beyond the classic sense.  What we are talking about stretches the limits of what was once considered practical – we are talking about assets, accounts, items, locations, and legal entities; materials, products, and reference data; suppliers, partners and customers.  The question now is how and where to begin.

Powering Agility through a Digital Supply Chain

Core ideas around alternative factories, multi-sourcing, and maintaining generous amounts of buffer stock are gaining traction, along with the need for cutting-edge technology to enhance omnichannel presence. Big retailers and CPG companies have begun constructing more agile and flexible networks of partners and intermediaries, sources and supply chains, augmenting their pool of primary suppliers with a complete secondary network and tertiary markets that can fill in when needed.

More and more grocers are returning to or developing their own private label brands to supplement their current supplies in an attempt to keep shelves full and counter cost push inflation effects. They are encouraging existing suppliers to build frameworks that allow them to produce in multiple locations, while also returning to inventory policies that have all but reversed cross-dock operations.

Such alternative sourcing strategies are being complemented by intelligent and autonomous systems, powered by digital innovations like Internet of Things (IoT), Artificial Intelligence (AI), and Machine Learning (ML) – all targeting further cost optimization and digital agility across the value chain.

Connected CPG supply chain software can efficiently communicate with each other to enable decision-making without human intervention. Making the most of Industry 4.0 tools will also provide supply chain visibility across all nodes in the partner network and facilitate on-the-fly remediation in case of disruptions.

Countering Cost Push Inflation Effects: Digital Agility and Insights as Business Imperatives

Agility, supply chain visibility, and insights thus become vital for the survival and success of a modern CPG enterprise. More and more supply chain managers are playing a key role across board rooms and contributing to critical and strategic decisions like cost optimization, product and vendor selection, merchandising, and operations.

According to Bain andMicrosoft’s combined study of supply chain leaders, digital agility and resilience top the list of priorities in their choice of supply chain software. The same study identified two key areas for future-resistant investment:

• In-depth analytics for predictive planning: CPG organizations need end-to-end and in-depth supply chain visibility to generate granular data sets, which can then be leveraged to provide actionable insights. These insights lead to better anticipation of supply-side changes and enable agile and real-time decision-making in the face of emerging opportunities and challenges.
• Omnichannel strategy: An omnichannel strategy ensures consistent customer experiences across websites, mobile apps, social media accounts, and brick-and mortar stores and enables customers to shop through all of these available touchpoints. In addition to increasing potential sales avenues and successfully addressing cost pressures, businesses with an omnichannel presence report 90% higher customer retention over those that do not.

Partnering for Crisis-Resistant Growth:  Survival and Success in Changing Times

A very fine line lies between survival and success; after a year of turbulence, CPG is making its way into this new era, the new normal.

The most successful brands are using intelligent technologies to adapt to faster-evolving consumer demands and market challenges like cost push inflation and regulatory constraints. While many still lack in resources to invest, supply chain planning has to take into account preexisting conditions, business plans, and other obstacles that impede progress towards resilience.

Striking a balance between efficiency and resilience is not easy. Increased resilience implies an increase in operational costs, but such costs can be offset by an integrated approach and a technology redeployment. Organizations need a CPG supply chain solution that brings together operational scale and flexibility, analytics and predictive planning, and an omnichannel capability – such digital agility provides the much needed degree of supply chain visibility, flexibility, and resilience that modern organizations need.

What CPG companies (as well as others, including Transportation, MRO, and electronics) need are committed and experienced technology partners who can provide network connectivity, partner communication, and supplier and customer insights and can set them on a path towards crisis-resilient growth.

PartnerLinQ by Visionet: Digital Agility at the Speed of Business

PartnerLinQ is a hosted integration platform for EDI, B2B, and API integration; it is the result of Visionet’s industry expertise and technology leadership. The PartnerLinQ team at Visionet has 25 years of experience in providing industry-focused technology, consulting, and innovative solutions that drive global supply chain transformation from the factory to the end-consumer. Hosted on Microsoft Azure, PartnerLinQ is an innovative, process-centric, easy-to-use EDI solution that enables API-led, cloud native integrations.  It includes a simplified B2B communication engine that combines EDI, AS2, SFTP, and real-time APIs and easily handles proprietary file-based formats and custom integrations. PartnerLinQ is well suited for retail, e-commerce, wholesale, transportation, 3PL, distribution, and digital and analog partner extensible platform, helping your team achieve operational efficiency and gain real-time visibility.

Visionet, a long-standing Microsoft gold partner, leverages Azure to build, test, deploy, and manage large-scale enterprise solutions for its clients; so when we set out to build PartnerLinQ, it made perfect sense to build, test, deploy, and manage the integration platform from within Azure.

You are probably familiar with this ‘BIG VAN’ claim repeated early and often by the champions of value-added networks (VANs):

‘The advantage of the network is the network itself.’

The claim, like all wide-ranging quotes, is to some extent only relatively true. Its validity depends upon who you are connecting with and how actively you link up with your trading partners. A closer look at the flow of goods and information within your business network will possibly reveal that no single network or VAN can address all your B2B/B2C communication needs.

While EDI and, in some instances, the VAN does help you connect, connecting with all your trading partners translates into a significantly higher ROI.  EDI today means more than simply X12; it means supporting multiple standards, formats, and transactions from X12, UN/EDIFACT, and GS1 XML trade messages to a number of non-EDI formats like JSON, flat files, text files, and proprietary XML message formats.

Read more: The truth behind the “competitive advantage” of value-added networks

EDI also means accessing a diverse set of communication methodologies – like AS2, MFTP, FTP, SFTP, and APIs – each with their own set of variables. While transaction formats and transportation methodologies make EDI more versatile, the complexity of handling such varied data formats and communication methodologies creates its own set of challenges, particularly when you consider the ‘BIG VAN’ value proposition.

The ‘BIG VAN’ value prop proudly claims that all members in your value chain are available on the same network or VAN as yours; while true to some extent, this is not an entirely accurate assessment. A VAN connection is by all accounts handy and, in some cases, necessary to interact with some trading partners. But it certainly is not everything.

The right tool with the right EDI transportation methods delivers far more effectively than ‘BIG VAN’ and at a lesser cost.

The Significance of the EDI VAN Interconnect

The ‘BIG VAN’ claim is largely backed by the EDI VAN interconnect. The interconnect is a tool that helps your value added network communicate with other value added networks and facilitates exchange of EDI transaction documents between connected pairs of trade partners. The more partners you connect with, the bigger the benefit derived from your communication network.

VAN interconnects effectively reduce friction between and among VANs, while also reducing the need for new VANs. The largest of the VANs reduce VAN-related confusion within partner networks by making claims to connect to thousands of trading partners; in effect though, ‘BIG VAN’ highlights the characteristics of EDI under which all EDI solutions and VAN partners operate. 

But what about transactions beyond X12 EDI? 

‘BIG VAN’ and the interconnect rely on a steady stream of ISA and GS identifiers within X12 transactions to move data, without which the ‘BIG VAN’ is about as useful as a cell phone without buttons.  While the VAN connection does handle X12, what about images, APIs, or XML files? These are typically not included in ‘BIG VAN’ offerings and, in most cases, require a different product altogether, adding to your overall cost.

A closer look at the VAN interconnect reveals that the reality of ‘BIG VAN’ is very different from the claim; if the interconnect connects ALL VANs then ALL VANs have the same access to trading partners, which means that ‘BIG VAN’ has a very different concern. ‘BIG VAN’ is concerned that it will inevitably be relegated to the stature of an ‘Ordinary VAN’ and without reservation. 

‘BIG VAN’ makes a big claim and living up to that claim is becoming nearly impossible.  This makes all ‘small VAN’ operators a competitive threat – why else would ‘BIG VAN’ make such claims if not to control and confuse the market? The VAN interconnect and image files remove the confusion from the claim ‘the advantage of the network is the network itself’; what else is there to the reality of ‘BIG VAN’?

The Synergy

Architecturally speaking, an EDI solution is actually made up of three components (or solution layers, if you’ll pardon the expression) – the transportation, transformation, and integration layers. While EDI is very effective when it leverages a ‘VAN’ connection, the VAN component is only a fraction of EDI, less than 30%.

Think about your VAN connection in the same way you think about how your mobile phone functions.  Your mobile phone functions by combining the services provided by the phone manufacturer, an infrastructure provider, and a telecom company; similarly, EDI functions by leveraging the synergy of these component layers to work as a synchronous whole.

Components of the ‘VAN Solution’

• Transportation. Along with VANs, this layer works using many other methodologies such as AS2, MFTP, FTP, SFTP, and APIs. Most of these methodologies have been around for a couple of decades now. Your VAN, in fact, may still be using FTP to connect you with your VAN mailbox; if it is not leveraging FTP, it is likely using AS2. Get in touch with your EDI team representative and ask, they should be able to tell you.
• Transformation. The transformation layer facilitates translation between different (EDI) formats. Formats like X12, UN/EDIFACT, GS1 XML trade messages, JSON, flat files, text files, or proprietary XML messages are transformed into formats that your ERP systems can easily understand and use.
• Integration. In the final layer, the transformed message is available to be consumed by the ERP. API connectors have been introduced in recent years to connect you with your ERP in a normalized way, much like the ODBC connector you may have used in the past.  The integration layer can be an API or a connector like ODBC or ODATA – the main emphasis here lies in providing (a) the route for landing the messages and (b) feedback that lets you know whether the order was rejected or accepted. The latter is the target, which requires the least manual input.

Do More Connections Provide More Benefits?

The key word is ‘choice’. If one network has the potential to provide a competitive advantage, do multiple networks offer even greater benefit?

The quantity of available networks is only one criteria that determines how effective your network is.  Connecting to multiple VANs is, frankly, a drain on resources, particularly when all VANs make use of the same VAN interconnect. 

While there is a need to be mindful of the connections available to your trading partners, using multiple VAN connections to stay in touch makes no sense at all. It is like having two or more cell phones or cable TV subscriptions, particularly when methodologies like AS2, MFTP, FTP, SFTP, and APIs are available.  Many of these options have low or no cost associated with them while VAN costs are subscription based and incur transaction fees that need to be paid monthly, much like that second cell phone that we referenced earlier.

The AS2 Effect

Application Statement 2 (AS2) is used for a reliable and secure transfer of data over the Internet. It provides a direct, unhindered connection with a trading partner and delivers document receipts and real-time tracking without requiring a VAN or a VAN interconnect. Your standard internet connection serves as the transportation layer; it is payload-agnostic, which means you can use the same tool to transmit images and every business has internet connectivity today. 

Unlike a VAN, AS2 does not typically have monthly charges or transaction fees. It reduces the chances of transaction failure by establishing a one-to-one transmission channel, without the need for a middle man, a VAN interconnect, or a ubiquitous VAN. Also, there is a Message Delivery Notification, but more on the MDN at a later time.

Putting It All Together

Now that we have unpacked the ‘BIG VAN’ claim, we can conclude that your EDI solution should provide more than one communication channel, has to be capable of handling a wide range of EDI formats, and MUST integrate smoothly and automatically with your enterprise systems.

We’ve also come to the conclusion that ‘BIG VAN’ cannot support the features that you need without complicating matters with additional software and subscriptions.

That’s why PartnerLinQ is different. PartnerLinQ is not a VAN; rather, it is a highly scalable, dependable, and configurable EDI and B2B communication solution. PartnerLinQ is ‘integration without complication’ that supports integration with Microsoft Dynamics 365 and other ERP systems. It includes an AS2 solution, FTP, MFT, and SFTP and can connect with any VAN, making it the perfect tool for B2B/B2C communication for your EDI and non-EDI partners.

PartnerLinQ also supports API-based ecommerce platforms like Shopify and Magento out of the box, providing your organization a seamless shift between EDI and API integrations; there’s nothing to add and nothing to buy, it’s all in there.

The solution also operates seamlessly between EDI and non-EDI formats – from X12, UN/EDIFACT, and GS1 XML to non-EDI formats like XML and JSON. While there are too many formats to list in a blog, this is a crucial factor that make PartnerLinQ a perfect choice for your EDI, B2B, and API integration and for smooth communication, while decreasing your reliance on ‘BIG VAN.’

Businesses turn to EDI solutions because EDI has proven to improve business efficiency and reduce costs. Compared to manual business processes, EDI helps reduce costs and inefficiencies up to 35%.

Businesses from Amazon to Zappos use EDI to take advantage of these benefits. In 2018, annual EDI transactions numbered over 20 billion. Combining EDI solutions with real-time APIs enhances partner communication even further, particularly for omnichannel operations with a large number of daily transactions.

In this blog post, we’ll talk about how implementing an EDI solution can streamline your business operations.

Procurement

EDI was initially used in the procurement process to simplify paperwork. The procurement process involves four major documentation stages: purchase order generation, purchase order acknowledgement, making changes in the purchase order, and acknowledging those changes.

Traditionally, these processes were done by posting mail (or sending an email) to the recipient manually. Using EDI, these processes are automated. Retailers can send their suppliers an electronic purchase order and their suppliers can then respond with a confirmation record within seconds. Changes in purchase orders can be made and confirmed quickly, easily, and often without human intervention. Buyers and sellers alike can expect several immediate improvements with the right EDI strategy:

• Faster procure-to-pay
• Quick and accurate purchase order delivery
• Fewer time-consuming and labor-intensive processes like responding to email
• Improved buy-side agility and improvements in fulfillment rates

Supply Chain

EDI vastly improves supply chain operations. Supply chain processes typically include an advance ship notice (ASN). Also known as an 856 or Ship Notice/Manifest, the structure of the message enables the transfer of information from seller to buyer at the shipment, order, pallet, pack, and item levels, providing the receiver information necessary to schedule shipment receipt and storage.
 

The ASN also accommodates common data elements used for business, including global trade item number (GTIN, i.e. the numerical representation of the barcode) and traceability elements like serial number, batch and lot numbers, expiration, packaging, and production. Relating harvest and use-by dates with these data elements at the shipment, order, pallet, pack, and item levels can help ensure consumer safety and reduce counterfeit goods.

EDI documents like the Transportation Carrier Shipment Status Message (214) and the Motor Carrier Package Status Message (240) from package delivery companies, couriers, logistics companies, and carriers enhance trading partners’ ability to track goods.

EDI is there when shipments arrive at the warehouse or on the consumer’s doorstep. The barcodes on the cartons can be scanned and data delivered by way of the ASN can be used to automatically update inventories, send confirmations and invoices, and if the shipments are somehow delayed, relevant personnel can be alerted immediately to address any concerns.

Automating the exchange of data through an EDI solution across the supply chain improves:

• The timing of orders, shipments, deliveries, and invoices
• Cross-docking, direct store delivery (DSD), and direct-to-consumer (D2C) delivery
• Product traceability and shipment tracking

Read more: Improving your supply chain efficiency with ERP-integrated EDI

Invoicing

Businesses are always looking to improve business efficiency and reduce costs. Many are also concerned about the environment. Within the United States, some federal agencies have made e-invoices compulsory to reduce paper usage. Many countries have taken environmental and other concerns even further with countries including Spain, Brazil, Italy, and Mexico mandating the use of electronic invoices.

EDI solutions have a long record of success in improving communication and reducing fraud. Companies employing EDI solutions have also been able to save costs in paper, processing, postage, and invoice storage, furthering their operational goals of improving efficiency and reducing costs. Real-time access to electronic invoices and other business documents helps trading partners eliminate manual tasks commonly associated with paper-based process while improving days sales outstanding (DSO) and reducing payment penalties.

Conclusion

A properly designed, implemented, and integrated EDI solution offers businesses many significant advantages:

• Improved decision-making
• Improved business efficiency
• Improved environmental and regulatory compliance
• Improved cash management
• Reduced paper, processing, postage, and storage fees

EDI-enabled companies are better prepared to focus on their customers without increasing overhead or administrative tasks. To learn more about how your business can migrate from a labor-intensive, paper-based business process to a modern EDI solution for your business, contact PartnerLinQ.

EDI Solutions for Dynamics 365

Complete EDI, B2B and API solution for frictionless partner communication.

Exchanging business data with other organizations can be expensive and technically challenging:

• Many EDI solutions fail to scale to high volumes and become sluggish under peak loads
• Standalone EDI systems need to be maintained separately from ERP platforms and create a disconnect between EDI processing and other business processes.
• Your partner will use probably different EDI platforms and data formats than your own.