CPG Industry Overview
Profitability is the key aim of all companies in the CPG industry. But with fast-changing consumer preferences and shifting channel landscape, CPG companies have been forced to cut their costs and improve their supplier risk assessment process to address unprecedented risks. Businesses in the CPG industry need to devise a way to obtain a larger return on their investments and improve profitability.
Business Challenges Faced
The client is one of the leading companies in the CPG industry, based out the United States, and has operations spread across the globe. However, factors such as increasing trade wars and tariffs in the US, rising raw material costs, stalled demand, and declining profit margins were increasing supplier risks. The inability to manage such supplier risks was resulting in significant monetary losses, damaging the company’s reputation, and resulting in regulatory penalties, production delays, and product recalls.
The client, therefore, approached SpendEdge to leverage their expertise in conducting supplier risk analysis and profitability assessment. With SpendEdge’s supplier risk analysis solutions, they wanted to identify typical risks associated with key suppliers in the CPG industry, their impact on the supply chain, and analyze the overall efficiency of the firm in generating returns for its shareholders.
The key financial objectives client aimed to achieve through the supplier risk analysis engagement were:
- Compute gross profit margins and operating profit margins to determine functional areas that were impacting the firm’s profitability.
- Propose measures to increase value obtained from existing suppliers and improve the cash flow margin.
Performing supplier risk analysis can help companies in the CPG industry to increase asset utilization. Request a free proposal and access our complete portfolio of supplier market intelligence solutions.Request Free Proposal
Our Research Approach
To help fuel growth and ensure benefits for the client, the experts at SpendEdge, identified suppliers that were threatening the client’s assets or profits. They first integrated supplier information, consolidated the supplier data, and ensured end-to-end supply chain transparency by continuously analyzing potential risks. The experts also used due-diligence data from different sources and identified suppliers posing the highest level of risk and disruption. Also, they identified suppliers who were financially unstable and were finding it hard to meet regulatory norms in the CPG industry.
SpendEdge’s supplier risk analysis solution helped the client to develop procedures to cope with risks that can impact their operations. It helped the client to identify new suppliers to craft alternative sourcing strategies and develop contingency plans would can address regulatory changes in the CPG industry and ensure the availability of raw materials. In addition, the solution provided a comprehensive understanding of the market landscape in terms of pricing models of suppliers in the CPG industry and risks associated with them.
Engagement Results and Benefits
Increased return on investment (ROI)
The supplier risk assessment methodology adopted by the experts helped the client to monitor the utilization of assets and the performance of suppliers. The assessment provided detailed insights into the suppliers’ performance and improved the client’s efficiency in putting the capital to its most efficient use. This increased the efficiency of the overall funds’ utilization of the company and increased its ROI by over 15% and helped them gain competitive edge in the CPG industry.
Insights into supplier performance and business practices helped the CPG company to reduce business risks by increasing dependence on its key suppliers. Supplier risk analysis further helped the client to identify financial and operational risks associated with the performance of prime and sub-tier suppliers in the CPG industry.
Wondering how improving supplier risk assessment process can help you achieve such monetary benefits and gain a competitive edge in the CPG industry? Request a free demo from our experts and know how they can provide you detailed insights into the CPG industry suppliers.
Supplier Risk Analysis Best Practices for Companies in the CPG Industry
Supplier risk analysis best practice #1: Certify suppliers
Incorporating risk into current metrics helps companies in the CPG industry to ensure that the suppliers associating with the organization are capable enough to meet business and regulatory requirements. It helps CPG companies to determine a supplier’s health and take risks that can be positive for a business. Marketplace due diligence further prepares businesses to find the right suppliers to go out to bid in the CPG industry.
Collecting, aggregating and centralizing all required information and documents for established suppliers helps companies to maintain compliance and gain the required visibility into the process.
Supplier risk analysis best practice #2: Monitor key suppliers
Not all suppliers carry equal value in the supply chain. Classify suppliers into different categories according to the business requirements and rate them on the basis of risks posed by them (low, medium, high).
Also, determine the types of risk levers that can affect suppliers and how prepare the organization accordingly. For example levers such as financial, environmental, operational, legal and political can cause disruption in the supply base and should be maintained on a regular basis.
Supplier risk analysis best practice #3: Identify the sources to be monitored
Companies in the CPG industry need to identify the external sources they want to use to monitor suppliers. This involves news feeds, government control lists, court filings, payment history, and many more.
Internal sources can also be an effective way to monitor suppliers. Companies can conduct internal surveys or look for colleagues who have already worked with those suppliers earlier for detailed insights.
Supplier risk analysis best practice #4: Have a disciplined approach
Since the supplier failure can’t be predicted with 100% uncertainty, companies are required to have an effective plan for their businesses. Proactively prepare for supplier disruptions and have sourcing strategies in place in case suppliers fail to perform. Also, ensure that supplier risk assessment is consistent in form and content and repeated regularly.