Rising Transportation Costs Drives CPG Industry to Rethink Supply Chain Network

CPG Industry Rethinks Supply Chain Network

Supply chain leaders at more than 40 major companies, including Proctor & Gamble and Land O' Lakes found that transportation issues are a top concern across the board, according to a report out last week. This is a dramatic shift from results of the 2012 survey, when transportation wasn't top of mind.

Capacity constraints and escalating costs are eroding the efficiency gained in recent years, according to the study conducted by BCG and the Grocery Manufacturers Association. “Driver shortages are forcing costs upwards, and deteriorating infrastructure is aggravating congestion and delays.”

The CPG industry now spends about $15.5 billion each year on transportation, 14% of all CPG companies' costs, reversing all other supply chain cost-saving efforts. Freight capacity shortages, particularly in domestic rail and truck transportation, have fallen hard on supply chain managers. And the economic recovery has boosted the construction industry, luring workers way from trucking industry, even as the surging oil & gas industry is taking up more truck and rail capacity.

CPG companies are responding by relocating their manufacturing and warehouse facilities. According to Elfrun von Koeller, a BCG principal, 72% of companies are changing their logistics network structure, up from 6% three years ago. This and other tactics, including efficiency moves and new partnership approaches, can lead to potential cost savings of $1 billion industrywide, BCG estimates.

BCG recommends a strategy it calls “SPEED” as a framework to provide tactics to addresse the issues.  The components of the plan are selection, partnership, efficiency, engagement and design. The study details how to employ these methods. 

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