Insight

Global supply chains are put to the test

Consumer and retail companies are enduring a perfect storm of challenges

Matt Kramer

Matt Kramer

National Sector Leader, Consumer & Retail, KPMG LLP

+1 614-241-4666

Rob Barrett

Rob Barrett

Principal, Advisory/Supply Chain Leader, KPMG US

+1 480-459-3535

Mary J. Rollman

Mary J. Rollman

Principal, Advisor/Supply Chain Strategy and Life Sciences Lead, KPMG US

+1 312-618-9863

Today’s consumer and retail businesses are enduring a perfect storm of challenges as they race to manage the pandemic’s continued disruptive impact, evolving consumer demands, the accelerating pace of e-commerce and the need to modernize supply chains.

Supply chains are now unmistakably "front and center" as consumer and retail leaders everywhere realize a full or near "return to normal" is neither likely nor entirely possible.  In the KPMG 2021 CEO Outlook Survey, 72 percent of consumer and retail CEOs say their supply chains have endured increasing stress over the last 18 months. We expect that percentage has only increased since the survey was fielded in August 2021. Additionally, in a recent KPMG Retail Executive Outlook Survey, 82 percent have concerns about inventory shortages during the upcoming holiday season.(1)

In a recent webcast, KPMG explored the importance of transforming supply chains in a consumer-driven world. Panelists included Mike Corbo, Chief Supply Chain Officer, Colgate-Palmolive Company; Mark Coffey, Group Vice President, Supply Chain, Hormel Foods Corporate; and Mary Rollman, National Supply Chain Strategy Leader, KPMG. The group took the most important issues head-on, including:

  • How consumer behaviors and expectations are changing supply chain strategy,
  • Actions supply chain leaders are taking to increase resiliency and boost flexibility,
  • How technology, data and insights are being leveraged to make meaningful change, and
  • How ESG is influencing the restructuring of supply chains.

Consumers and employees are in control

Our panelists each cited how the world has changed not only due to the pandemic but what is starting to look like more permanent shifts in consumer behaviors impacting supply chains.  “We have definitely seen how the dramatic acceleration of e-commerce in the short term has affected the supply chain, exposing inefficiencies and putting huge pressure in areas like warehousing and freight,” said Mike Corbo. “Not that e-commerce wasn’t growing before, but it’s accelerated dramatically in the last couple of years. That behavior change has required that we really step up changes in the supply chain.”

At the same time, the departure of employees from their traditional workplaces is presenting new challenges as organizations look to ensure they can deliver products and services that are needed. “When you look back to the start of the pandemic, literally overnight we sent much of our workforce home,” said Mark Coffey, “More remote work means more meal occasions being consumed from home. So at Hormel Foods, of course, our goal is to offer consumers choice. There’s going to be a number of consumers that will prepare more meals from home and we need to have a portfolio to react to them.”

The movement of people has also been evident as individuals and families re-think how and where they want to live. Mary Rollman elaborated on this: “We’re seeing a lot of geographic shifts and I think some of that is going to place a lot of strain on supply chains because history isn’t as able to predict demand, so there’s a need for more predictive analytics in order to better predict what consumers will do.”

Disruption challenges supply chain resiliency

To drive increased resiliency and boost supply chain flexibility, improved planning is unmistakably top of mind. We are seeing many companies revisiting and reshaping contingency plans with an eye to enhancing flexibility and accelerating responsiveness to the current environment’s demands, disruptions, and challenges. Mike Corbo explained, “Contingencies were usually built on one disruption happening in one place where others could make up the difference. Now we’re having multiple disruptions at the same time. So we’ve pivoted from a "planned contingency" to a "prepare to act" mindset…we need more validations, we need more supplier options, we need to make sure we are connected across our global supply chain as disruptions happen.”

The disruption can also come from the rapid growth of the digital channel, which was not necessarily predicted nor being properly addressed. Mark Coffey went on to say, “Total e-commerce is growing two or three times faster than our regular retail business…Our role from the supply chain side is just make sure that we continue to provide great customer service so that they can have products on the shelf again to support click and collect.”

Clearly the ability to demonstrate a resilient supply chain requires an effective extended enterprise, which includes the vendors you count on every day. Mary Rollman described a client success story, “A client had a very good, strong strategic partnership with suppliers and really doubled down on those strategic partnerships in effort to get raw materials into the U.S., not abandoning them at that moment and running off to change their suppliers just to eliminate any potential risk. It turned out well, it was that strategic partnership that they had developed over the years when things weren’t challenging."

Disruption can also be exacerbated by reactive behaviors that harm the supply chain. Mike described this well, “I noticed scarcity; so I need 10, let me ask for 15. Let me ask for more to see if I could get what I actually need. You multiply that by everybody doing something, and you have this unnatural increase in demand that people are trying to meet, and it makes the situation even worse versus what is the norm.”

Total e-commerce is growing two or three times faster than our regular retail business.
Mark Coffey, Group Vice President, Supply Chain, Hormel Foods Corporate

Data Insights will drive meaningful change

Forward-looking businesses are also wasting no time boosting investment in technology that will advance their capabilities in crucial areas that include end-to-end supply chain connectivity, visibility, and collaboration. Assessing second-party and third-party risk and gaining a reliable line of sight into orders and services that face potential interruption has become very important in today’s environment.

At the same time, business leaders are looking to optimize the power of data and analytics. Increased reliance on data and the ability of analytics to deliver timely, informed insights that support smart planning and decision making under pressure is now a high priority.

“We need people to trust the data—and to use the data and the analytics to make decisions. But we also need people to challenge the numbers because blindly following the data sometimes gets you a bad outcome,” says Corbo. “So a little bit more insight before making decisions is something that we continue to strive for.”

Smart data use that includes modern analytics and statistical tools will give businesses sharper visibility into the ever-evolving consumer marketplace amid fluctuating supply-and-demand signals. Mary went on to say, “So I think that more analytical tools that are a bit more sophisticated, that take into account different data, data that will give us a better sense of what kind of predictions of what a consumer will actually consume, what their behaviors are going to look like is going to be critical, and then how do you build that into your tools and systems?”

Making meaningful change certainly does require investments to benefit the future. Mark explained, “We are in the middle of a journey…we’ve standardized our demand planning process. So that process starts with an algorithm that generates demand and then there’s cross-functional input of shaping that demand to get to consensus demand. So absolutely, we’re making changes.”

Analytical tools that are more sophisticated, that take into account different data…data that will give a better sense of what a consumer will consume, and what their behaviors are going to look like is going to be critical.
Mary Rollman, National Supply Chain Strategy Leader, KPMG LLP

ESG redefines supply chain strategy

Sustainability is now high on the agenda as well. Forward-looking businesses are seeking innovative ways to build sustainability into their supply chains as they address today’s challenges and implement changes. They are recognizing the inevitable need to restructure supply chains for a new era amid growing consumer awareness toward more sustainable choices.

Mike explained, “Colgate is a caring, innovative growth company reimagining a healthier future for all people, their pets and our planet. That’s our purpose. So, while sustainability has always been on our radar, it is fully integrated into our global supply chain. Now, we’re going to get asked questions; we’re going to have to be able to measure whether a decision was good from a sustainability point of view; what was the carbon effect of a particular decision-what was the impact to energy use? So, sustainability can’t be separate: it’s built into our supply chain strategy - and our business strategy.”

The future is no longer about announcing the latest environment-friendly initiative – sustainability now needs to be built into every element of modern supply chain strategies. As such, more sector players are "greening up the grid"– embedding sustainability enterprise-wide to reduce carbon footprints and meet consumer expectations that businesses play an active and consistent role in shaping the planet’s future.

Mark went on to say, “We’ve quietly assembled a quite impressive portfolio of renewable energy sources, and primarily, it’s an area of solar and wind. But I’m proud to share by the end of 2021, we will have enough renewable energy to offset 100 percent of our domestically purchased electricity for our supply chain. And we’re not going to stop just because we support 100 percent, but we’ll go beyond that.

Clearly, we are seeing companies prepare and respond in advance of any regulatory requirement to do so. Mary shared, “I’m so excited every time we have this conversation around ESG in terms of just the attitude around doing the right thing and making sure we build this into everything that we do, whether it’s when we build new buildings and we think about sustainability of our fleets, to our packaging and all the things that supply chain gets to put their hands into making those decisions.”

There’s been a real shift into having sustainability built into your supply chain.
Mike Corbo, Chief Supply Chain Officer, Colgate-Palmolive Company

Participant survey is telling

In addition to the insights from our panelists, many of the consumer and retail executives attending the live webcast provided their insights to our post-event survey. These four key questions provided additional guidance on how the industry sector views the challenges of transforming the supply chain in a consumer-driven world.

Footnotes

  1. KPMG report “Merry and bright: Retail executives are hopeful for the 2021 holiday season” 2021.

Figure 1 - What changes in consumer behavior are having the most impact on your supply chain strategies?

Figure 2 - What top strategy are you looking to implement to help address risks to your supply chain?


 

Figure 3 - What top initiatives have you implemented or are planning to implement to help provide transparency of data and information to properly execute on demand planning?

Figure 4 - If you could make one internal change to improve your supply chain performance, what would it be?

Top answers
  •  Data and analytics
  •  Better forecasting capabilities
  •  Visibility into third-party partners