April 20, 2021, 8:36 AM CDT / Source: CNBC.com
By Amelia Lucas, CNBCProcter & Gamble announced on Tuesday that it will hike prices on baby care, feminine care and adult incontinence products in September to respond to higher commodity costs.
The consumer giant joins a host of other companies, including Kimberly-Clark and Coca-Cola, that are raising prices to protect profit margins. The companies are betting consumers will be willing to pay more for the brand version instead of opting for a cheaper private label. However, that outcome depends on the economic recovery from the coronavirus pandemic and how many consumers will have the cash to spare.
P&G said its price increases will vary by brand but will be in the range of mid-to-high single digits.
The announcement comes as a new report from the Consumer Brands Association revealed that sales of consumer packaged goods climbed 9.4 percent to $1.53 trillion last year.
The boom in demand hasn’t abated yet, the trade group said, noting that manufacturers are still struggling to catch up on inventory. To meet the challenge, companies are hiring more workers, adding new factory lines and boosting wages amid the protracted surge in demand.
“This was the greatest test that the system could have ever experienced,” said Geoff Freeman, chief executive of Consumer Brands. “Our wildest imagination may not have been able to imagine the 12-month surge that we just went through.”
Even as the pandemic subsides, Consumer Brands is forecasting that industry’s 2021 sales will still be up 7.4 percent to 8.5 percent from 2019. January sales are up 16 percent from the same time a year ago, representing the highest year-over-year change since last March. February sales growth slowed slightly but was still in the double digits. Before the pandemic, strong growth for a CPG company meant an increase in the low single digits.
“This industry is still sprinting a marathon,” said Katie Denis, Consumer Brands’ vice president of research and industry narrative.
The last year’s soaring demand means that manufacturers are still trying to catch up on supply, and every obstacle can mean millions of dollars in lost sales. Freeman cited a conversation with a chief executive who saw more than one-quarter of his manufacturing plants closed for a week in February due to the Texas winter storm. The Suez Canal blockage in March caused even more headaches.
General Mills and Clorox are among the companies that turned to third-party manufacturers for a temporary fix to skyrocketing demand. The situation has prompted some CPG companies to rethink inventory targets and how close products should be to retailers. Freeman said that some manufacturers won’t be able to catch up on inventory until new capital expenditures come online.
The current stress on the supply chain means that some shortages, like the ongoing ketchup packet scarcity first reported by the Wall Street Journal, are harder to forecast.
“That’s the kind of thing that we should see coming six to 12 months in advance,” Freeman said.
The surge in demand has resulted in higher wages for CPG manufacturing workers. PepsiCo and Hormel were among those who gave out bonuses to their frontline employees last year. According to the Consumer Brands report, pay for food manufacturing workers climbed 3.4 percent in July through September compared with the same time a year ago. Nationwide non-farm wages fell 0.8 percent in the same period.
“I don’t know if [wages] will climb higher than 2020, but there’s no reason to believe that there will be a drop off, according to the companies that we surveyed with McKinsey,” said Denis.
CPG companies also ramped up their hiring. After initial job losses hit the industry, particularly for food service suppliers, other food, beverage and household product manufacturers scrambled to scoop up more workers. Some companies hired 10 percent to 20 percent more workers than they actually needed to account for employees who were quarantining or caring for sick relatives, according to Freeman.
If the world was a game of monopoly, 2020 cracked its knuckles, and flipped the board over. Storefronts closed. Production shut down. Hoarding toilet paper caused a national shortage of multi-ply. There wasn’t a single industry, business, town, or person that wasn’t affected. Those that could adapt, did, and those who couldn’t—they hit some hard times.
So, what did we learn?
No matter the cause, good or bad, the future always holds uncertainties, and there’s no way to predict how it’s going to affect us.
With eCommerce hitting record numbers in June/July, it’s no wonder that companies were scrambling to keep up with orders. The very best of them set the new standards for customer satisfaction in the supply chain, while those who didn’t make changes when they needed to, saw all-time lows in customer satisfaction.
The biggest factor? Flexibility + adaptation. Businesses who shifted to a digital strategy for supply + staffing in 2020 did well. Companies that already prioritized AI, Machine Learning, and cloud-based connectivity in their Inventory Management did even better.
The problems of 2020, for the most part, were externally caused. Your supply didn’t stop because your manufacturers moved to Antarctica. Wal-Mart didn’t see less in-store sales because they started charging for parking spaces (If you’re a Big-Box exec reading this, please don’t get any ideas). The whole world hit the brakes because of something we couldn’t see, predict, or control.
If your business strategy is still relying on an ERP, you probably felt this the most. Don’t get us wrong, ERPs are great at some things, but definitely not everything.
Accounting: No Problem.
Working with mobile inventory apps: Not so much
ECommerce integration: better luck next time.
ERPs were built with an internal focus in mind. In other words, as long as supply + business models stay the same, an ERP will work just fine. However, in today’s world, this is hardly ever the case. If you are only focused on one thing at a time, you’re missing opportunities left and right.
Rather than focusing on internal solutions + data, a Digital Supply Network looks outwards. They let you leverage multiple vendors for supply, so you can plan for upcoming demand + meet your deadlines on-time. Basically, it picks up where your ERP left off to help you find what you need, when you need it.
A lot of companies have success with Microsoft D365 and it’s cloud-based model, but this only works if the rest of your system has the same external focus as well (businesses get the most out of systems like D365 when paired with Power Automate + Logic apps to help fill gaps in the supply chain).
Finding the solution that fits:
Let’s say you stop reading the article right here. You decide to get a DSN it’s got a framework that uses dynamic authentication methods, and a powerful, scalable integration that can build off what you already have.
You’re excited, your colleagues are excited, you take it out of the box, and try to implement it, and—nothing. Sadly, this happens often, because a lot of ERPs aren’t built to handle the kinds of information a DSN works with. So, you need to find a solution that connects the two and puts them on the same page. This solution is an Inventory Platform.
The Inventory platform gives them the information they need to work, and a common home-base for all your system’s information. Paired with your ERP, D365, and any other systems you use to manage + track supply, the Inventory platform can navigate all sources of your information, with a powerful UI that makes onboarding + implementation a breeze. If you’re looking to learn more about WithoutWire’s Power BI capabilities, check out our Knowledgebase.
Of course, there’s still an asterisk for using another system. Let’s say, for example, you source a DSN from a smaller shop, custom-built just for your business. But, within a year, your business strategy, locations, inventory, everything, has changed. You’ve got multiple locations, needing hundreds of serialized parts, undergoing complex site transfers monthly. Does the system you implemented a year ago still stand up? We hope so. If not, you’re back where you started.
The beauty of an Inventory Platform is flexibility and scalability. No matter what your suppliers use, no matter how many SKUs, no matter what the industry or function of any part of your business, your ERP, DSN, and all of your customizations you’ve made are ready to change, adapt, grow + build through AI, Machine Learning, and optimizations that are focused on a world filled with entropy and change.
So, if you needed a sign: here it is. Things aren’t just going to return to the way they were because we want them to. Change is the only constant. So, if you’re looking to improve your supply chain in uncertain times, look outward, and look for a system that grows with you.
As always, we’re here to show you how you can make Inventory Management easier. Get in touch with us, and we’ll get you what you need.
Want to explore more? Check out our recent podcast on this subject.
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Cooper’s Hawk is a Winery and Restaurant company that currently operates 30
restaurants across 8 states. They produce and distribute all of the wine for their restaurants
out of their Winery and Distribution Center, located in the suburbs of Chicago. Cooper’s
Hawk’s rapid growth creates a critical need for their operational processes to keep up with
their expanding enterprise.