Blockchain in FMCG supply chains

Blockchain is a technology that can publicly validate, record, and distribute transactions in encrypted ledgers that cannot be altered or changed. In this blog, we look at how Blockchain can be applied to FMCG supply chains to improve efficiency & traceability, and increase compliance

Here is a great illustration of how a transaction is created by McKinsey:

Not only is this technology great for applications where increased security is a must, but it also has the potential to increase transparency and end to end visibility of the supply chain.

What are the applications of Blockchain in FMCG supply chains?

There are 2 key aspects to supply chain transparency:

  • Visibility: Accurately identifying, collecting and classifying data from all parties/links in the supply chain
  • Disclosure: Ensuring only relevant information is disclosed to the viewer, depending on their approval access internally and to external stakeholders

Implementing blockchain technology for supply chain contexts solves for both aspects providing:

Improved communication and collaboration

Due to its nature, blockchain technology improves communication and facilitates collaboration among all parties in the supply chain. Greater traceability and transparency eliminate waste, duplicate orders, invoice fraud, payment issues and unapproved spend/orders too.

Transparency in sourcing

The nature of this technology makes it easier to verify where materials and goods come from and how they pass through the supply chain. This also reduces counterfeiting of products including premium/super premium alcohol, prescription drugs and luxury goods.

Sustainability & efficiency

Using Blockchain in FMCG supply chains also results in efficient gains. Using blockchain in conjunction with other technologies results in more efficient stock holdings, reducing waste. Also, blockchain enables companies to go paperless as it relates to their supply chain and the immutable nature of the technology enables data to be stored efficiently for future teams to refer to.

Effective product recalls

Blockchain technology enables a more transparent and traceable supply chain, enabling manufacturers to locate affected products quickly and efficiently, thereby, increasing the effectiveness and efficiency of recalls. Contamination & quality issues can be traced to specific lots of batches and also the relevant suppliers identified by using this technology.

Compliance

Increased transparency in supply chain due to blockchain adoption also results in a more sustainable and compliant supply chain, by enabling sustainability & ESG tracking. Not only this, combining this with QR codes has the potential to increase visibility of sustainability credentials for consumers, directly impacting sales.

Many companies are already exploring the benefits of leveraging blockchain technology in supply chains, such as smart contracts, purchase order payments and supply chain tracking.

To learn more about the applications of Blockchain in supply chains and listen to how a start-up in this space is changing FMCG supply chains, tune in to the Salesbeat podcast next week on Tuesday, 20 December 2022.

You can also listen to salesbeat podcast to learn more. Stream now!

Climate change and FMCG sales

Climate change in the form of extreme heat, hurricanes, flooding etc. presents an inherent risk to FMCG companies. It disrupts raw material supply and logistics (roads buckling, flights unable to take off and ships tossed about), resulting in price increases.

British Retail Consortium and NAACDs published studies that establish that every one degree change in temperature results in a 1% fluctuation of sales. However, companies and retailers are still not prepared for this.

The recent heatwaves in Europe and the resulting out of stocks and overstocking of certain SKUs at stores, are proof that inventory management technology has not yet caught up with the problems of today. So how exactly does climate change impact demand?

Obvious examples of climate change impacting sales

Ice-Creams, beer, white wine, rosé wine, chilled carbonated beverages, barbecue ingredients and products, picnic food, sunblock and sunscreen are the obvious ones that retailers stock up on when there is a heatwave.

According to Majestic Wine in the UK, during this last heatwave in July, Rosé outsold white and red wines by more than 172,000 bottles in that week alone. One bottle of Rosé wine was sold every 12 seconds!

Research firm Kantar said, ‘Sun care sales were up 66% and ice cream 14% in the four weeks to 10 July’.

During cold waves, pasta, pasta sauces, soups, baking ingredients, red wine, spirits, lotions for dry skin, flu medications etc experience increased demand.

Regions at risk of experiencing tornadoes, cyclones, hurricanes or storms, or where there are flood warnings in place, are likely to see increased demand for basic necessities like tinned & frozen food (incl. vegetables), packaged soup & pasta mixes, toilet paper, soaps, shampoo and household cleaning products.

Some not so obvious ones

However, there are a few not so obvious SKUs that experience increased demand as a result of unseasonal weather. The impact is not immediately seen and so maybe masked by other factors.

For example when both temperatures and humidity levels are high, there is a delayed increase in demand for anti mould & anti fungal products, shampoos, body soaps, conditioners, anti frizz hair products etc as consumers use more of these up at home during this time.

Another not so obvious one is a (delayed) increase in demand for allergy medications following a period when the weather is hot and humidity levels are low. Pollen count and dust levels impact demand of this product too.

Planning for unseasonal temperatures and weather events

While inventory teams and FMCG sales people may be making plans for barbecues and outdoor picnics when these heatwaves hit, several times, they do not translate this into their work lives.

And, when they do, they need to make guesstimates of the right levels of stock of these products at stores. This is because their demand planning system is unlikely to have taken this heatwave (or cold wave/other weather event) into account.

However, you know what you do as a consumer. It is not a stretch of the imagination to assume others are likely to do the same. Use this knowledge to help prepare your supermarket/FMCG company to ensure there is enough stock of impacted SKU to meet demand/delayed demand.

Follow the weather and ensure you do not order too much of one SKU assuming seasonality still holds. An example is ordering a container load of red wine in December assuming robust Christmas sales, when warmer, unseasonal temperatures are expected for Christmas.

Also, check out our blog on how you can anticipate changes in demand in a VUCA world.

If you have any questions or would like more information on how you can better prepare for demand changes driven by climate change, contact me on veena@salesbeat.co



Regaining consumer trust – a 2022 focus for many FMCG companies

According to a recent report by Deloitte on the state of the Consumer Goods industry and key imperatives for 2022, increasing transparency helping in regaining consumer trust was top of the list for several companies.
Trust and transparency are intrinsically linked. Consumer goods brands that are not open and transparent are at risk of losing consumers’ trust, according to nine in ten executives that Deloitte surveyed. According to the report, most consumer goods companies are making an investment to increase the level of transparency for consumers and other stakeholders.

Increased transparency requires meaningful insights to be derived from raw data

For consumer goods companies to be transparent to all stakeholders and consumers, data needs to be sensed and captured.

The data collected should be shared and processed with other data sources to derive meaningful insights. Sharing an abundance of raw uncleaned data is likely to result in the opposite of what these companies are trying to achieve.

According to Deloitte’s report, intelligence, artificial or otherwise, is needed to do this effectively.

This includes supply chain transparency

55% of the execs that Deloitte interviewed for this report, cited out of stocks of products as a key reason for losing consumer trust. Another 48% cited stock outs of certain flavours/varieties/pack sizes of the brand as a key reason for losing consumer trust. Out of stocks at stores cannot be solved without transparency across the product value chain. Furthermore, it is critical that retailers and consumer goods brand owners work with the same demand/sales predictions to collaboratively ensure that there is enough stock produced, bought and stocked at stores, to meet demand.

Increased flexibility in stocking

Increased supply chain transparency enables consumer goods brand owners as well as retailers to be more flexible with their stock keeping policies. Most companies these days follow a just in time stock policy. However, when there are production related constraints like raw material supply issues or shortages or labour constrains at manufacturing sites, it enables consumer goods companies to make an informed decision to keep more stock(raw materials and finished products) when possible for future contingencies.

If the constraints are on the logistics side, it enables retailers to make an informed decision to stock more in their warehouses to ensure they do not run out of stock.

Without an understanding of expected consumer demand based on real time data combined with where there are constrains in the value chain, it is impossible for the different stakeholders to make a decision on what needs to be done.

Consumer trust and supply chain transparency

Speaking of stakeholders, consumer goods companies need to regain consumer trust by increasing supply chain transparency. By increasing supply chain transparency and ensuring availability of stock at stores, consumer goods brands and retailers can regain the trust they lost with consumers who experienced availability issues at stores.

What’s more, it gives consumers confidence in any sustainability claims the brand/retailer makes. According to the execs interviewed by Deloitte, 84% of them feel that consumers lose trust when brands don’t meet consumer expectations on ESG initiatives.

If you’d like to learn more about how to increase supply chain transparency and derive meaningful insights regarding demand from available data, email me on veena@salesbeat.co

Can a shift in power balance help the FMCG sector?

Years ago, the power balance between manufacturers (suppliers) and retailers was skewed towards the former, but with consolidation in retail and the formation of large players like Tesco & Walmart, the power balance favours retail currently.

Imbalance driven by low fragmentation in the sector

In the UK, the large grocers/supermarket chains (Tesco, Sainsbury’s, Morrisons and Asda) had ~67% market share in 2021 according to a survey by Kantar Worldpanel. This collective share is a key driver of the imbalance.

The largest UK grocer

The power dynamic has been shifting since the 2007-08 financial crisis, which saw the rise of discounters and launch of private label brands by the grocers. In 2020/21, the landscape changed yet again, driven by the acceleration in online sales and in sales through on-demand grocery delivery companies. However the change has not been significant enough to balance the two sides.

Zero sum game: Retailer margins or FMCG company margins?

The large grocers and FMCG companies have effectively locked themselves into a zero sum game.

Grocers have been charging their suppliers (FMCG companies) listing fees and slotting fees to ensure they deliver margin growth, while at the same time promoting and selling own label brands (significantly cheaper) alongside their suppliers’ branded products.

This has led to large FMCG companies boycotting certain grocers, which in turn has lost the companies large swathes of their market.

Not surprisingly, the result is a win-lose situation with any moves by either side impacting the other negatively.

While this strategy has previously enabled the grocers to source brands at low costs and provide consumers with a wide range of SKUs at competitive prices, the reliance of FMCG brands on overseas suppliers and of the grocers on just in time ordering to keep costs low, has given rise to unprecedented levels of stock outs in stores, with everyone, including consumers ‘losing’ in this game.

Data as the new battleground

More recently, data has emerged as a key battleground for both players. Retailers these days have a wealth of data around sales, which they currently do not share on a realtime basis with their suppliers. This is usually because sharing data is not part of the retailer’s company culture and they fear a rebalancing of power.

As communication between retailers and suppliers is usually very transactional, even point of sale data for each of the SKUs that the supplier sells the retailer is not shared.

However, the Walmart/P & G collaboration that was launched in 1988 is evidence that data transforms this relationship from a perceived zero sum game into a win-win situation. The collaboration was instrumental in growing the retail sales of P & G brands at Walmart from what was $350 million in value in 1986 to $10 billion in 2017 (interview with Tom Muccio, the ‘father’ of this collaboration, on valuecreator.com). This has also resulted in a better and closer relationship between the two giants.

All Good Diapers launched exclusively at Walmart by P & G

Why is this important now?

Sharing the latest retail data on sales and inventory levels helps suppliers/FMCG companies plan for sales much better, which in turn drives their plan for raw materials and production runs, leading to accurate stocking at warehouses.

This then ensures that any purchase orders placed by retailers are fulfilled in their entirety, eliminating stock outs at retailer warehouses. This collaborative approach can lead to the slow demise of the current supply chain crisis that has gripped the world since 2020.

Collaborations between retailers and suppliers can ensure that the retailer is always in stock, ensuring a win-win situation for all – FMCG companies, supermarkets, their employees and consumers.

12+ months after Covid fuelled panic buying

More than a year after Covid fuelled stockpiling of necessities and grocery staples, we still see empty supermarket shelves.

Many assume this is because of an increased focus on online sales by the large grocers, especially in the US, as evidenced by this article in Insight Grocery Business in March 2021. We’ve also seen similar instances in the UK, but in the UK, we’ve blamed these stock-outs on Brexit. There have been recent articles on similar instances in the Middle East & in several EU countries too.

An increased focus on online shouldn’t lead to empty shelves in store. Especially as those who pick stock for online orders through external providers pick products off the shelf currently. This is especially so if orders are placed on Instacart (US), Uber eats or Deliveroo (UK). And Brexit shouldn’t cause stock outs of brands made in the UK using materials sourced in the UK.

So what is really going on?

As we mentioned in our previous article on the 2021 Easter egg shortage in the UK, supermarkets, and brands that sell into supermarkets, typically use last year’s sales volumes as baseline for current year orders.

Buyers have exercised some judgement this year by not ordering sanitisers, cleaning products, kitchen cupboard products (pasta, rice, flour, canned vegetables etc), cleaning products & toilet paper in line with last year’s sales, when consumers were stockpiling in anticipation of supermarkets running out of these staples due to lockdowns. However, they did not exercise the same judgement when they ordered other brands/products (confectionery, small format beverages etc). Even less so when it came to the beer, wine & spirits inventory in store.

Despite increased sales across confectionery and beverages during the later stages of the pandemic, supermarket orders were placed for similar sales volumes as last year during the same time.

So now you see stock-outs across categories and markets.

The only thing in common across categories and markets is the impact of covid on consumer behaviour and choices.

As supermarkets still order on the basis of previous year volumes, they’ve had to exercise their judgement when placing these orders. This is difficult when everything the buyer knows about consumption habits has changed, after more than a year of living under pandemic conditions/lockdowns.

A google search on habits and how long it takes to form a habit runs the gamut from 14 days to 54 days, with the most cited number being 21 days. A study by the University College of London found that it takes 66 days for a habit to form. If the new behaviours were easy, it took 20 days (the example they cite is drinking a glass of water after breakfast every day) and, based on how disruptive the new habits were, ranged to 254 days.

Many of us have lived in lockdowns/pandemic conditions for more than 254 days. Depending on where we live, this has ranged between 75 days and 270 days. Enough time for new habits to form.

Add in significant variations in weather due to climate change, and (almost permanent) changes to how and where we work and/or study. No wonder retailers/FMCG companies are struggling!

If you’d like to understand how best to leverage data to arrive at optimal order volumes for your supermarkets/brands, email me on veena@salesbeat.co

The FMCG industry & data

The fast moving consumer goods industry needs data driven decision making in every function on a daily basis to ensure a sustainable advantage vs competition. However, this industry is very sporadic in its use of data.

Historical internal data is the driving force in the FMCG industry. This industry and external data have a contentious relationship. While they use (external) data driven insights to craft marketing & category strategies and to develop new products and brands, their use for (external) data in day to day operations and in sales has been less than optimal.

It is the complex nature of how external data impacts the business, which makes it hard to adopt on a day to day basis in the industry. Today, let us look at data driven insights for supply chain and production.

This process happens primarily through regular risk management meetings/updates by the supply/production planning team. These updates/meetings happen on a periodic basis and are reviewed then for impact on the business and for any action that needs to be taken.

However, we are living the perfect storm – a time when climate change, pandemics, access to information and easy cross border travel are all influencing not just what consumers want but what goes into making what consumers want and how they buy/access it.

It is key, now more than ever, that companies in this industry use external data, that monitors supply chain risks, regulatory compliance and sustainable alternatives to current sources, in everyday decisions much like tech companies do, so they can achieve the same agility in business that the tech industry does and the FMCG industry aspires to.