How to Create an Inflation Adaptable Strategy in an Uncertain Economic Environment
Numerous well-known household consumer product brands such as General Mills and Smucker’s are announcing that prices are on the rise.
The good news for consumers is that many consumer packaged goods (CPG) corporations and their CFOs are hard at work searching for strategies to keep price hikes from happening in the first place and identify new ways to offset inflation.
Among the many challenges that consumer product manufacturers are experiencing is increased prices for ingredients, packaging, trucking, and overall labor.
General Mills announced in a recent article in The Wall Street Journal that the company is expecting to raise prices throughout the year by 7%. The company’s Chief Executive Jeff Harmening said, “No one wants to increase prices, but we’ve had to.” General Mills said it plans to offset more than half of its rising costs by making internal cuts and running its operations more efficiently.
Searching for the Right Equation
Consumer product brands are searching for the right equation to find a balance of cost and spend. CFOs are also in a state of constant evaluation by aligning company strategy to meet and overcome inflation challenges. They’re searching for cost savings actions and trying to predict and align strategies for various levels of inflation.
In a separate article in The Wall Street Journal, J.M. Smucker Co. CFO Tucker Marshall said that his company is taking steps to reduce costs by spending less on marketing, brokerage fees, and improving efficiency in its supply chain and production. The company expects these and other measures to contribute $50 million in annual savings during its fiscal years 2022, 2023, and 2024.
As c-suite leaders, especially in the food and beverage industries, attempt to identify strategies to offset inflation and bring down costs, following are four approaches that you can use to do the same for your organization:
4 Steps for Creating an Inflation Adaptable Strategy
- Implement scenario-based planning for different levels of inflation and prolonged periods with higher price pressures. Carefully plan as well for an unexpected spike in inflation and for when inflation eases. Analyzing a variety of “what if” scenarios will go a long way toward helping to ensure that you develop a sound overall strategy for dealing with inflation.
- Deepen your understanding of your customer base and how their buying behaviors have changed. Pandemic-fueled trends, such as the growth in online grocery shopping and people working from home, will have lasting effects. Companies are spending time gauging consumer reactions to addressing changes in consumer buying behavior while effectively developing a pricing strategy, layering innovation and new products.
- DAT Trendlines™ for the week of June 28 - July 4, 2021 reported industry trends of dry van spot rates are up by +47.3% year over year, and fuel prices are up +36.5% year over year. While truckload capacity is leading to record highs, there are also many pressures in the supply chain's transportation sector including the lack of drivers as well as the overall capacity constraints to meet the volumes of product to trucks available.
To offset these challenges, please consider the following alternatives to transporting commodities and products:
Utilize a Diversity of Modes
A flexible approach that can help minimize your use of more expensive shipping options. Modal flexibility can also provide cost savings, disruption avoidance, opportunity for optimization and faster transit.
Will provide your business the ability to rate shop and get the most cost-effective shipping rates. For each shipment, you can choose the best carrier for the job based on their strengths and experience. Finally, and most importantly, with tender rejections setting record highs, you have a secondary provider if your top pick carrier doesn’t arrive.
Retailer Consolidation Services
Allows shippers to save on transportation costs and reduce compliance fines by taking advantage of a shared supply chain network. Retailer consolidation also enables brands to combine their LTL shipments with other brands going to the same big-box retailer. This service not only minimizes the shipper’s exposure to fines but also reduces the number of damaged/losses and carbon emissions as they’re sending fewer trucks out on the road.
Learn more about the GEODIS Retail Consolidation Program and its associated benefits as we support our customers and help them reduce fines and damages while providing consistent shipments to earn additional shelf space and product growth.
Supply Chain Visibility
Reduce unexpected costs while staying ahead of distressed shipments. Additionally, utilizing vreal-time access to order tracking, shipment/load status, pickup and delivery tracking, freight claims, on-time performance, and carrier metrics.
Outsourcing Transportation by Working With a 3PL
- Establishes a large resource network including carrier relationships, global reach, freight forwarding, warehousing, and technologies.
- Saves time and money by outsourcing labor, technologies, warehouse space, carrier contract negotiations and overall risk mitigation.
- Industry experience helps you stay up to date with best practices, analyzing data, and developing predictions which also means you stay ahead of the curve.
- Constant innovation and technology investments will help you identify ways to implement optimization and continue improvements.
- To assist companies with evaluating their supply chains, GEODIS has created a free network location design guide to help identify blind spots for cost savings and inefficacies.
Consumer brand manufacturers are in a tough spot facing inflation challenges and daunting planning strategies to offset price increases.
While developing your own strategies to offset inflation, spend time scenario-based planning to identify the best routes to take during the economic shifts, deepen your understanding of your customer behaviors, and consider different ways of transporting goods, whether it be a diversity of modes, retail consolidation services, or partnering with a 3PL like GEODIS.
Lastly, don’t hesitate to take advantage of the variety of tools and expertise that are available such as the free GEODIS network location design guide that will help you self-identify optimizations, as well as offers from GEODIS that include a complementary network design.
Banker, Steve. “Direct Store Delivery Is A Deal With The Devil.” Forbes, 19 July 2019. https://www.forbes.com/sites/stevebanker/2019/07/19/direct-store-delivery-is-a-deal-with-the-devil/?sh=181d50547057
DAT Trendlines™. Retrieved from: https://www.dat.com/industry-trends/trendlines
“Freight pricing: Spot Rates vs. Contract Rates.” Shipwell, 29 March 2019. https://shipwell.com/industry-insights/difference-between-spot-contract-rates/
Gasparro, Annie and Maidenberg, Michah. “General Mills Warns of Inflation, Readies for Shifting Consumer Behavior.” The Wall Street Journal, 30 June 2021. https://www.wsj.com/articles/general-mills-warns-of-inflation-readies-for-shifting-consumer-behavior-11625066446?page=1
Samuel, Alexandra. “How Working From Home Has Changed Employees.” The Wall Street Journal, 12 June 2021. https://www.wsj.com/articles/working-from-home-employees-11623463249?mod=article_inline
Smith, Jennifer. “Logistics Providers See E-Commerce Momentum Continuing Post-Pandemic.” The Wall Street Journal, 9 June 2021. https://www.wsj.com/articles/logistics-providers-see-e-commerce-momentum-continuing-post-pandemic-11623266882?mod=article_inline
Stark, Alex. “5 Ways to Reduce Logistics Costs in Consumer Goods Distribution.” Kane Logistics, 19 March 2019. https://www.kanelogistics.com/blog/5-ways-to-reduce-logistics-costs-in-consumer-goods-distribution
Trentmann, Nina. “Smucker CFO Weighs Additional Price Hikes if Inflation Exceeds Forecasts.” The Wall Street Journal, 10 June 2021. https://www.wsj.com/articles/smucker-cfo-weighs-additional-price-hikes-if-inflation-exceeds-forecasts-11623344630?mod=article_inline