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Focusing on the impact of consumer behavior on transportation flows, the article explores the causes, effects, and potential rewards associated with minimizing this volatility.
Consumer behavior significantly influences the operation of CPG supply chains, particularly in the context of erratic transportation flows. The article pinpoints variations in consumer behavior, notably heightened weekend shopping, leading to increased orders from grocers and volume retailers early in the week. Consequently, customer-facing distribution centers (DCs) witness shipments surging, resulting in fluctuating orders and the bullwhip effect, exacerbated by holidays and unpredictable consumer behavior.
In addition to external factors, self-imposed sources of volatility include month- and quarter-end sales push, manufacturer promotions, seasonal inventory changes, and adjustments to safety stock inventories. The accompanying diagrams underscore the considerable variability in typical replenishment lanes for a large CPG company.
The impact and costs of volatility in supply chains are extensive. Challenges include:
This overload leads to detention charges and potential cuts in customer service due to delayed product availability.
Freight costs, the most easily measurable expense, surge as preferred carriers may struggle with peak volumes. Transportation managers may be compelled to hire less desirable truckers at higher costs or with inferior service. Moreover, a less quantifiable but actual cost is embedded in carrier contract prices to cover the impact of volatility.
Mitigating volatility requires a network perspective that focuses on maintaining service while smoothing replenishment flows in the “inventory deployment” step of the supply chain. The article stresses the need to consider volatility over an extended horizon. It emphasizes the importance of optimization software to address the complexity of managing multiple supply points, coordinating inbound flows, and respecting capacity constraints at each DC.
The article acknowledges the practical challenges in implementing such strategies and emphasizes the necessity for sophisticated optimization software, not simplistic Excel solutions. A successful case study is highlighted, where a large shipper has fully implemented level loading deployment operations, leveraging technology to save “many millions” of dollars annually while improving customer service.
In conclusion, the article underscores the clear imperative for CPG shippers to address volatility in transportation flows and distribution center operations.
By doing so, shippers can enhance supply chain efficiency, reduce costs, and bolster customer service, ultimately reaping substantial rewards.