There is an ongoing battle today that customers of mid-size Consumer Packaged Goods (CPG) companies can not see. On one side are the actual customers who demand that CPG companies create products that cost less but retain high quality. On the other side, there are those within the company who are trying to cut costs, without sabotaging the quality of the products they manufacture. What is then targeted are distribution costs and downsizing inventory, but this is not necessarily a good strategy for any CPG firm.
The dilemma of not being able to compete with larger CPG firms because of limited resources is troubling numerous mid-size firms throughout the country. However, one way to solve this conundrum is to partner with a Third-party Logistics (3PL) provider. Here are four ways that a 3PL can help a mid-size CPG firm win against bigger competitors:
- The integration of data from sales and fulfillment systems– Almost any mid-size or small CPG firm can attest to the fact that sometimes their inventory cannot cover the volume of sales that are processed. This in turn can cause problems such as deciding who the remaining products should be sent to, and bias from Customer Service Representatives who opt to send the remaining products to their clients. This would not be an issue if a 3PL partnership is in place. This is due to the fact that 3PLs possess technology such as a Warehouse Management System (WMS) that could sort out the issues that a shortage creates.Smaller companies do not always have this technology set in place because it is either not a priority, or it is too expensive. One benefit of integrating a WMS with the data from a company’s sales system is to be able to address the aforementioned issues at a low cost. This is primarily done as a WMS has the capability of creating reports based on historical data and projections. In turn, this enables a faster, more intelligent decision that will prioritize customers based on the gathered information and the company’s unique knowledge of its customer. In no time, a 3PL’s WMS will prove to be superior compared to the usual “first-in first-out” model.
- The ability to consolidate shipping with other CPG firms- Most mid-size CPG firms do not have the same scale that larger companies have, which means they have less inventory to ship out. This usually means that they would then have to ship more frequently or use a Less-than-truckload (LTL) shipment. Either way, both are pricy and could significantly cut into profit margins. A 3PL’s solution to this is to consolidate shipments of one mid-size CPG firm with another firm that has the same retailers or destinations. This may sound like an outrageous concept, but it is actually a brilliant way for both firms to save money. It is also a simple task for a 3PL, and there is little to no added cost to implement.3PLs have Transportation Management Systems (TMS) in place that can analyze who the best candidates for consolidation are. For instance, the system may recognize that three 3,000 pound shipments are set to be sent out to the same destination or region. Instead of being shipped as three separate entities, it could then be consolidated into one. The benefits of this are two-fold. First, the three companies that shipped their products would save money. Second, the company receiving their load will also be able to save time and money by having to deal with just one shipment instead of three.
- Moving to a just-in-time inventory model through cross-docking freight- In order to reduce storage costs, and the labor required to receive, put away, and pick inventory, 3PLs are able to let CPG firms cross-dock their inventory. This means that items received will be broken down and matched with pending orders for immediate shipping. The money and time saved from adopting this proven process goes to show how effective it is, but it is not always used because it can be difficult to implement.Usually, the requirements for cross-docking are visibility to factory production and inbound freight, advanced systems to marry orders with inbound freight, and tight coordination with carriers. There are a lot of requirements before being able to successfully cross-dock. Oftentimes, smaller CPG firms do not have the time, resources, or experience required to do this. However, 3PLs are more than capable of accomplishing this task, which is why partnering with one is important.
- Packaging products in the distribution center- Each market has a different demand for various packages. Mid-size CPG firms do not want to neglect those demands because it could help boost their sales. However, the process of shipping their products from their distribution centers (DC) to professional packagers and back is not cost effective. It also endangers the product, and has the potential of being damaged because of the amount of handling involved. Those problems can be eliminated if the packaging and other configuration is done in a DC. It is estimated that there could be savings of 10%-15% based on reductions in freight costs, inventory on hand, and damage. Products can also move faster in DCs, which enables a quicker turnaround in the sales process for CPGs.