A recent study claims that the best laid plans of leading retailers and consumer packaged goods manufacturers to reduce inventory levels went awry in 2007 despite increased spending on supply chain planning and tracking programs.
Archstone Consulting, which produced the report, analyzed the inventory levels and productivity of companies including Colgate, Costco, Hershey, Kellogg, Pepsico, Unilever and Wal-Mart. It found that many CPG companies have been focused on driving incremental top-line gains through line extensions and product improvements.
According to Archstone, there were 1,700 new CPG product rollouts in 2006 and a similar number was planned for 2007. This number represents a 25 percent increase over the previous three years.
"A surge in new products across the consumer packaged goods and retail industries over the past two years and an increase in off-shore production have absorbed any operational improvements achieved in planning and manufacturing over the last few years," David Sievers, Consumer Products and Retail Practice Leader at Archstone, said in a press release. "If retail spending weakens further in 2008 given our uncertain economic environment, we predict increased focus on inventory levels across the supply chain as products sit on shelves or in distribution centers longer."
Among Archstone's findings were that improvements in inventory productivity in recent years flattened out around mid-2006 and continued through last year. Even companies that made gains such as Wal-Mart failed to achieve the type of productivity improvements they had set as an organization.
Food and beverage manufacturers had mixed results in optimizing inventory levels. Larger companies assessed in the study saw a slight decline in productivity while midsize manufacturers either maintained or improved on past productivity levels.
Discussion Questions: Will we see considerably fewer CPG product rollouts in 2008 than in recent years? Will manufacturers and retailers working together be able to achieve significant reductions in system-wide inventory levels in 2008 and beyond?