Fast-moving consumer goods—at least some of them—have become emblematic for 2020.
If there was ever any doubt about the importance of resilient supply chains in the fast-moving consumer goods (FMCG) sector, one need only recall the expanse of empty shelves that had once held toilet paper or pasta at the onset of the Covid-19 pandemic. In March, in the UK alone, there was “more than £1bn worth of food stocked in people’s houses than there was three weeks ago,” according to Helen Dickinson, chief executive officer of the British Retail Consortium.
While these events could not have been anticipated, they demonstrated the vulnerabilities within supply chains. Over the past three decades enterprises—not least in the FMCG sector—have become ever more global in their scope. Reducing slack in supply chains, along with inventories, has optimised cash flow and business returns. But the rise of protectionism over recent years had already been challenging this model, and in 2020 the sector was hit by a perfect storm of geopolitical instability, spiralling commodity prices and ratcheting tariffs, topped off with a global pandemic. This report gives an unrivalled insight into the challenges facing the sector—not only from the Covid-19 crisis—and how supply chain executives have been adapting.
Key findings include:
- The Covid-19 catalyst: FMCG companies have spent decades developing global supply chains and reducing inventories, thus optimising returns. The rise of protectionism had already been challenging this model before the coronavirus outbreak. The pandemic has simply accelerated what had already been brewing in the sector.
- Growing concerns: Of all the trends, the Covid pandemic has unsurprisingly had the largest impact, particularly in the US. Survey respondents were also concerned about major price fluctuations in commodities and global cyber-attacks, which were a particular concern for Europeans. US respondents highlighted territorial disputes in the South China Sea.
- Near-sourcing is far-sighted: The shortening of supply chains—or “nearsourcing”—has been a strategically important response to the year’s multifaceted crises. Regionally, nearsourcing was most important for both the Asia-Pacific region and Europe, while being considerably less so for US respondents.
- Cost considerations are a regional issue: Lowering costs is a more important consideration in the US and Europe than in Asia, where many economies, especially China, are instead looking for the better profit margins that can be achieved with more sophisticated products.
- The growing importance of sustainability: Labour conditions and wages are the most significant sustainability issue in our respondents’ supply chains, as companies tend to focus on their most prominent problem. However, the headline figure conceals a sizeable difference, as Europe and Asia rank labour issues much more highly than US respondents.
- Resilience—can’t pay, won’t pay: While the Covid crisis has demonstrated the importance of supply chain resilience, it remains cost-constrained for most. FMCG businesses run on high volumes and low margins, with less room for manoeuvre in cost terms than in other sectors. Change will come through changing working patterns rather than increasing spending.
