Overview of the FMCG Sector
The global FMCG sector consists of goods that are traded very frequently due to repeated purchases and are the first to leave the supermarket or hypermarket shelves. The FMCG sector is highly sensitive to changes in disposable income or, in other words, very demand elastic. The market share of the FMCG sector is expected to increase significantly over the next few years primarily due to macroeconomic factors such as rising disposable income, improving demographics, and expansion of organized retail in developing countries. Additionally, the FMCG sector firms are now increasing their focus on e-commerce due to the increasing mobile internet penetration.
However, our analysis of the recent FMCG trends shows that the FMCG sector firms are facing challenges in terms of:
- Poor supply chain infrastructure: Lack of storage and transport facilities coupled with rising costs of raw materials and energy has been a significant challenge for the firms in the FMCG sector. For instance, food items tend to have a significantly shorter shelf life and require quick delivery systems, regular replenishment of products on the shelf, and vastly different distribution and storage requirements.
- Multiple micro-markets: Multiple micro-markets across geographies have distinct needs, which triggers category preferences that vary from state to state. This poses a continuous challenge for players in this sector to balance out the market needs, and the inefficiencies related to customization.
Many such factors and FMCG trends are compelling firms in the FMCG sector to leverage the use of category management solutions.
The Business Challenge and Journey
Client background: The client who approached SpendEdge is a multinational food manufacturing company. They produce convenience food products and snacks through its manufacturing facilities, which are present in more than 15 countries across the globe.
Client issue: The client sought to identify and implement cost-saving methods to reduce its overall operational spend in the Asia-Pacific region and identify the latest FMCG trends and their impact on the business. The client had a long-term relationship with a major premix manufacturer, and the premixes were being single-sourced. The pricing of these premixes was on an upward incline due to the depreciating value of the currency and suboptimal weather conditions affecting the supply of raw materials. To generate significant savings, the cost of premixes had to be optimized. However, the key challenge in doing so was the client’s limited visibility into the primary cost drivers contributing to the overall premix cost.
To help the client realize its cost-saving goals, SpendEdge’s category management experts followed a comprehensive research methodology and carried out discussions with prominent stakeholders in the FMCG sector. The experts also compiled information from a wide array of proprietary sources such as paid industry databases, company presentations, and industry forums to identify the key negotiation levers to dictate favorable price terms with the premix supplier and the latest FMCG trends.
Client journey: During the course of this category management engagement, the FMCG sector client identified the key cost drivers impacting the overall premix cost. These included the cost of packaging, blending, transportation and losses owing to wastage, along with the cost of quality control, and clearing and handling charges. Additionally, the client was able to work with the supplier to develop a mutually beneficial periodic review and price revision mechanism.
Key questions answered in this category management engagement
With the help of SpendEdge’s category management solution, the FMCG sector client was able to reduce the overhead expense allocations through robust supplier negotiations. Additionally, they established a supply chain model connecting the premix manufacturer and their raw material supplier to reduce costs. This resulted in the client achieve savings of more than 5% for the category.