The era of easy money for consumer goods companies is over. Over the past decade, China's economy experienced ultra-fast growth, driving the consumer goods industry to grow by 10% annually (2005-2014), a rate that was the envy of many. However, China is now undergoing new changes: e-commerce is becoming the norm, modern retail is quietly emerging, and customers are becoming smarter and more discerning. At the same time, national economic growth is slowing, competition in the consumer goods market is intensifying, and operating costs are rising. These new changes are making profitability in the consumer goods market increasingly difficult. With money becoming harder to earn, a new question confronts consumer goods companies: How to transform in the context of the Internet era and China's 'new normal' economy? The consumer goods industry is now a sea of blood. Companies are increasingly competing for the wallets of the same consumer groups. But the pie is limited. They can only invest heavily in R&D, brand building, and promotions to meet consumers' changing needs and increase consumer loyalty. However, getting newly developed products and promotional items onto retail shelves in a timely manner requires an efficient and high-quality supply chain. Only by adjusting the supply chain to these new changes and improving revenue and profit performance can companies catch the bus that is about to speed by. In the past decade, the consumer goods industry grew at an average annual rate of 10%, making money too easily and fostering a mindset of 'if you can produce it, you can sell it.' Many companies in China use third-party sales models (such as through distributors) to reach consumers, and many large companies with billions of dollars in revenue sell more than 90% of their products through distributors. This mindset led companies to adopt a push model, focusing on 'pushing' products to distributors, because this push model used to guarantee product sales. However, as times have changed, the hidden dangers of this push model have surfaced. According to A.T. Kearney's report 'Keeping Pace with the Times in the Consumer Goods Market,' under this push model, China's consumer goods supply chain design and execution have the following seven problems: 1. Lack of understanding of true market demand. Many consumer goods manufacturers see significant discrepancies between planned demand and actual order volume. The accuracy of SKU-level demand forecasting at the sales region level is only 50-60%. Both consumer goods companies and their distributors suffer from high finished goods inventory and excessive spending on promotions for 'old/obsolete' products. 2. Manual intervention increases volatility. Many consumer goods companies add manual intervention from the very beginning of the order processing stage, for example, when ordered items are out of stock, they have distributors cancel or delay orders, so real order information cannot flow to upstream parts of the supply chain. Additionally, planning departments often guess demand based on distorted distributor orders. This increases volatility and produces the classic bullwhip effect. Upstream supply chain volatility can be 2-3 times that of the end market. 3. Suboptimal network layout sacrifices customer service levels and leads to high supply chain costs. Historical growth and expansion have left consumer goods companies with legacy supply chain networks. Such networks often have many shortcomings, such as suboptimal allocation of products across factories, lack of infrastructure scale, too many inventory points, and unreasonable product flows. 4. Lack of service-level-oriented inventory policies and replenishment rules often leads to simultaneous stockouts and overstock. Inventory replenishment plans are detached from market demand signals and are generally based on top-down business targets, not necessarily linked to customer service levels. For companies that have established inventory policies, inventory management is relatively rough and does not go down to the individual category level. 5. Lack of flexibility to respond to market demand changes. In a rapidly changing market like China, the supply chain needs to be flexible and able to respond quickly when demand forecasts are inaccurate. Many Chinese consumer goods companies still use rigid supply chains, where production and logistics activities are determined by the original monthly production-sales coordination plan rather than actual market conditions after the plan is made. 6. Lack of differentiation leads to suboptimal service levels and costs. Many companies still use a one-size-fits-all supply chain management approach. They do not segment customer groups with diverse product needs or different service level requirements, resulting in some customers/products receiving too low service levels and others too high, leading to suboptimal service levels and costs. 7. Organizational structure and KPIs are misaligned. Many consumer goods companies manage different supply chain functions in silos, lacking communication and collaboration, and lacking end-to-end accountability. This leads to a phenomenon where each department's KPIs look good, but overall supply chain performance is poor. Building a new generation supply chain requires a fundamental change in model, shifting from a push model to a market-oriented pull model, adopting an end-to-end visibility and service mindset. According to A.T. Kearney's project experience in China, FMCG companies can improve service levels by more than 10% while keeping cost structures unchanged. Unlike the push model, the pull model starts with market demand. Customer orders generate pull signals that are transmitted to logistics distribution centers, where inventory is used to fulfill customer orders. Then inventory changes at the distribution centers signal production, which in turn signals raw material procurement. The ultimate driving force of the pull model comes from the end retail market. Distributor orders in the middle cannot 100% reflect retail market demand, and distributors have many incentives to distort end-market demand. Therefore, visibility of end-market sales data is critical. Additionally, inventory strategy plays an important role in the pull model. Just-in-time (JIT) production is not common in the consumer goods industry. Having the right products, in the right inventory locations, at the right inventory levels, and with the right replenishment mechanisms helps optimize upstream supply chain economics and cope with market demand fluctuations. A pull-based supply chain is flexible and adaptable, able to quickly adjust to market changes, thereby better meeting consumer needs while also effectively reducing fulfillment costs. Furthermore, the new generation supply chain should also establish an 'end-to-end' visibility and service mindset. The silo mentality under the push model often optimizes local performance at the expense of overall benefits. In the new generation supply chain, both organizational structure and KPI setting should be integrated to achieve end-to-end comprehensive effects and maximize overall benefits. As consumer goods market growth slows and consumers become increasingly discerning, consumer goods companies must enhance their innovation and responsiveness and adopt more economical ways to meet consumer needs. In such a market environment, supply chain transformation is more important than ever. The era of easy money is over. Consumer goods companies must stand up and run at full speed to avoid being eliminated by the market. Source: http://36kr.com/p/5051586.html -END- China's best learning platform for FMCG distributors Focusing on providing professional, practical, and actionable tutorials for companies and distributors Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get the corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent article selection | 002 Distributor market operations | 003 Terminal visit management | 004 Sales supervisor skills | 005 Sales improvement techniques | 006 Channel expansion | 007 Managing distributors | 008 Distributor development | 009 Distributor internal operations management | 010 Team management | 011 Efficient distribution techniques | 012 Sales manager's eighteen skills | 013 KA operation methods and strategies | 014 First lesson for new salespeople | 015 Internet, brands | 016 Distributor B2B transformation | [Long press QR code to follow]