Freight Accessorials for CPG Companies: Augmenting Revenue While Covering Costs…And Then Some!
The challenge of adapting to the constantly-changing needs of consumers and retailers is compounded by the push for CPG companies to become lean and cut costs within their own operations. The effect of this can be noticed in numerous areas, but three major shifts have greatly impacted CPG companies and the way they operate.
- More Private Label and Store Brands: As a way to save money, consumers are looking for cheaper alternatives to the products and brands they’ve historically purchased. While not always true, private label and store brands are often viewed as being less expensive, increasing their appeal to today’s money-conscious shoppers. In order to meet changes in demand, some retailers have gradually increased inventory levels of private and house brands compared with many of the larger, more recognizable CPG brands.
- Growth of the Dollar Channel and Online Retail: In addition to changes in the brands consumers are buying, there has been a shift in where they choose to purchase these products. Historically, the majority of consumers would shop at big-box retailers and purchase everything needed for that week, or longer. However, due to reduced spending and more staggered purchases, the dollar channel has grown tremendously as consumers settle for purchasing fewer items at once and taking more frequent trips to the store. In addition, online retailers are taking some of that market share, which means a different sourcing strategy for manufacturers as well as the need to be quicker to market. CPG companies are clearly wrestling with this and reacting as quickly as possible with network changes and updated strategies.
- Increased Margin Compression: Companies are looking at their entire organization to find ways to cut costs, and many are identifying the supply chain as a significant opportunity for savings. Organizations are closely evaluating their current operations to identify opportunities to streamline processes, eliminate waste and ultimately, reduce supply chain costs, while maintaining high service levels for their retail customers.
These recent shifts increase the complexity of the supply chain for CPG companies, and forward-thinking organizations are putting processes in place to address these trends and create more efficient, cost-effective supply chains.
One of the major ways that companies can increase their cost-effectiveness is through benchmarking their freight accessorials. These benchmarks are used by shippers to change carrier behavior, or by carriers to make sure they’re properly compensated for all the extra service they are providing to the shipper. Common examples include detention and stop-off charges, both of which contribute to and affect a shipper’s costs. Benchmarking against the market can put CPG companies in a better position to control accessorial costs – in fact, getting the right action plan in place can help uncover up to 12% savings of a company’s total freight spend.
In short, CPG companies are looking to reduce operational costs while also adapting to shifts in consumer behavior and retailer requirements, and those companies that invest in the right processes are in a position to successfully navigate current and potential future challenges.
What are some other ways that CPG companies can adapt to current retail trends while keeping costs down?