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1. A White Paper from the Americas Leaders in Supply Chain Management
Consumer Goods
Manufacturers Seek Greater
Supply Chain Flexibility
Uncovering Packaging and Distribution Efficiency Opportunities

2. products to meet diverse needs. Many major retailers
Introduction and FMCG manufacturers benefited from this high
Over the past few decades Fast Moving Consumer consumption era – and supply chains were all about
Goods (FMCG) companies have been forced to keeping up with demand.
react to a multitude of changing market dynamics.
The mergers and acquisitions era created strong Then, in 2006, consumer spending patterns in
competitors and rapid growth for many companies, developed economies, such as North America, Western
but resulted in complex and costly logistics Europe and Japan, began shifting as volatile stock
infrastructures. And, the growth in big box retailing prices signaled an early warning to the severe and
and e-commerce placed increased attention on the lingering economic crisis to come. The effects of the
consumer shopping experience, recession – falling home values,
creating a shift in the balance of lack of credit, high unemployment
power from the manufacturer to and the dramatic erosion of
the retailer.
“The shift to
modern trade personal savings – pushed
in emerging markets is consumers toward a more frugal
At the same time, the technology lifestyle characterized by lower
and manufacturing boom was
a clear trend. We see rates of spending, value
giving rise to developing different stages of retailer purchasing and trading some
economies in Asia and Latin convenience for better prices.
America, creating new consumers requirements during this They also shifted their spending
and growth opportunities for evolution, creating more to retail channels such as
FMCG manufacturers and retailers discount centers and convenience
alike. While top-line growth was complexity in dealing with stores and made a variety of
enticing in these emerging other shopping choices,
these differing models.” including turning to store
markets, lack of infrastructure,
dispersed populations and Source: FMCG Manufacturer, Asia brands, to obtain the best
cultural nuances created possible price.
challenges for even the best
manufacturing and logistics The demographics of developed
planners seeking to establish operations and capture countries are also evolving, forcing retailers and
market share quickly and profitably. FMCG manufacturers alike to further segment their
go-to-market strategies. For example, aging baby
While each of these dynamics influenced how FMCG boomers who once loved the convenience of big
manufacturers and retailers went to market, the box stores are now seeking more accessible
economic fluctuations experienced around the world neighborhood locations.
in recent years have most dramatically impacted
growth and operating strategies. Recognition that local consumer preferences and
needs vary by locale is also growing. Whether
Responding to Shifting Demand catering to the requirements of a rural community
in Developed Economies or offering products that fit the tastes of an ethnic
neighborhood in an urban area, adapting to
In mature markets, the early 21st century saw customer needs has never been more critical to
unprecedented affluence among busy, technologically maintaining market share.
advanced consumers who were demanding higher
levels of service, quality and shopping convenience. The decreased consumption of consumer goods
Savvy retailers anticipated and capitalized on these in North America, Western Europe and Japan,
consumers’ expectations, giving rise to big box and combined with shifting demographics and lower
specialty retailers that offered unique shopping rates of spending, will continue to limit growth
experiences and a nearly endless selection of potential in these areas.
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3. Positioning for Sustained Capitalizing on Converging
Growth in Emerging Markets Market Dynamics
Even before the global recession started, FMCG While the market dynamics of developed and emerging
companies were extending their reach into Asia, economies remain distinct, supply chain strategies
Eastern Europe and Latin America. employed in both markets are
While lack of infrastructure and converging in some areas. A
diverse retail channels, including “Even during the financial recent Grocery Manufacturers
local markets and street vendors, Association (GMA) report noted
made product distribution
crisis, emerging market that managing supply chains in
challenging, it was clear these consumers kept buying, silos on a regional basis and
countries could offer sustained “reinventing the wheel” are lost
growth for decades to come – helping to buffer many opportunities to optimize best
an upside manufacturers needed emerging economies practices on a global scale. The
as mature markets were phrase “think globally, act locally”
reaching the saturation point. from the global recession. has never been more appropriate.
While sales of consumer
Whereas consumers in mature This paper examines how retailers
economic markets are remaining goods in developed are reacting to these changing
frugal during the recovery, markets fell 14% between consumer dynamics and, in turn,
studies indicate that young, new how FMCG manufacturer
middle classes in countries such 2007 and 2009, demand strategies are being impacted.
as India, China, Mexico, Brazil in emerging markets kept It then reviews several areas
and South Africa are steadily FMCG supply chain managers
increasing their rate of spending growing, increasing 11%.” can optimize to help meet
on consumer goods. These customers’ needs, while achieving
countries are seeing increased JPMorgan Market Commentary, their own operational efficiency
output, employment growth and September 2010 and sales support goals.
the emergence of increasingly
affluent consumers ready to explore
new products, brands and retail channels.
Retailers’ Strategies to Meet New
Consumer and Economic Dynamics
However, the opportunity to capitalize on sales and
market share growth will not last forever. The middle In a benchmarking study by the Aberdeen Group,
classes are quickly forming attachments to brands retailers identified the need to react to fluctuations
and products, particularly those that align with local in demand in a timely manner as their top supply
tastes and cultures. chain execution pressure. This is a result of historical
buying trends in mature markets no longer being
A major cultural shift is also underway as consumers who a clear indicator of future consumer behavior in
have traditionally purchased goods at markets or small an uncertain economy. And, in emerging markets,
local stores are beginning to shop at supermarkets, mass demand is difficult to measure accurately due to
merchandisers and discount stores. But, competition the diverse retail distribution channels and still-
and channel complexity remain, because both retail developing consumer preferences.
models are viable options in urban and rural areas.
In spite of demand measurement challenges, retailers
Whether already established and looking to increase must still act quickly to compete for share of the
market share or just preparing to enter an emerging consumer wallet by looking for new ways to attract
market, there is a greater sense of urgency for FMCG customers to existing stores in established geographies,
manufacturers and retail distributors to ensure their and attempting to localize the product offering and
supply chains are positioned for growth and flexibility. increase market penetration in emerging markets.

4. Product selection, marketing and merchandising when point-of-sale data was less reliable in
strategies, and new store formats are all being anticipating future demand. And, emerging
evaluated to secure the highest possible market markets are unpredictable by nature due to visibility
share in target geographies. limitations and rapidly evolving customer needs.
Determining the appropriate mix of SKUs to satisfy
At the same time, retailers are continually focusing consumer shopping habits while avoiding under-
on reducing overall levels of inventory and seeking or over-stocks that could negatively impact
to lower total landed costs to maximize profits. top-line sales and bottom-line profits, is now a more
Whether succeeding in a mature market with dynamic process requiring frequent adjustments.
value-conscious consumers or seeking to influence
how increasingly affluent consumers in emerging Smaller, More Frequent Orders
markets shop, retailers are taking similar approaches
to differentiate and achieve competitive advantage. Traditional retailers are responding to demand
dynamism by changing their replenishment
Localized Retail Formats strategies to smaller, more frequent orders.
Changes in store size, format and location to
Merchandising and other product-driven accommodate local or demographic needs
strategies are common areas of focus when have also influenced inventory replenishment
adapting to changing consumer needs, but strategies. Smaller retail formats, dollar stores
new views on optimal store formats are and convenience stores have limited shelf
taking center stage in recent years. and inventory storage space. Maintaining less
The first mass merchandisers inventory at stores also avoids
to enter markets like Mexico over-stocks and obsolescence
and China quickly learned “Lead times are going when demand fluctuates.
that large, inventory-packed
stores did not always align
down. Smaller deliveries
Store-Level Differentiation
with the shopping habits and are increasing. These
preferences of local consumers. Product customization through
This has resulted in smaller
changes are the new innovative packaging, specialty
stores that feel more like reality and will stay in packs, promotional bundles and
the casual markets locals assortments continues to grow in
prefer. Although the driver place even with an popularity among retailers. The
is different, a similar economic turnaround.” concept of secondary packaging
transformation of retail (co-packing), first introduced in
formats is occurring in mature Source: Beverage Producer, Europe club stores as a way to entice
markets. Retailers are catering customers to buy in bulk for more
to consumer target groups, value, is now a sophisticated
such as aging baby boomers marketing strategy focused on
and ethnic populations, by drawing customers into the store and differentiating
building stores that offer shopping experiences the product offering.
uniquely aligned to their needs.
Retailers are also enjoying higher sales and profits
Stock Keeping Unit (SKU) Rationalization from store brands, which can provide consumers
more value for their money than brand-name
Retailers are continually evaluating their SKU products. Private labels today bear no resemblance
assortment to improve the consumer shopping to the unappealing black and white generic brands
experience, reduce out-of-stocks and lower overall introduced in the 1970s, and they are gaining
inventory and waste, thereby improving margins. SKU respect as good-quality alternatives to higher priced
optimization strategies in mature markets were national brands. In the U.K., private labels make
particularly important during the economic downturn up more than half of its grocery market, according
PAGE 4

5. to data from IBISWorld. Recent research by reduce labor costs. “Smaller,” “customized” and
Information Resources, Inc. indicates that in the “highly differentiated” do not work well with these
U.S., store brands have captured an estimated 23 legacy operations. Figure 1 illustrates a traditional
percent of the market, with annual growth rates distribution supply chain in a mature market.
of 18 percent in the last two years.
The growth of modern retail channels in emerging
These retail strategies, which are designed to address markets will eventually be a benefit to FMCG
changes in economic conditions and consumer companies operating in these regions, offering
behavior, have upstream market share and profit distribution synergies and sales channels more
implications for consumer goods manufacturers. aligned to their production capabilities. Today,
however, it adds complexity to an already tenuous
situation. In addition to using local distributors to
FMCG Supply Chain Impacts of
get product to markets and local retail outlets,
Evolving Consumer & Retailer Needs
FMCG manufacturers are now challenged to meet
While consumer goods fared better than most industries the needs of an even more diverse retail channel
during the economic downturn, manufacturers are mix. And, of course, manufacturing quality and
still faced with unpredictable consumer demand, product safety remain a concern and challenge,
strong competitors, increasing retailer requirements, particularly in remote or unstable regions.
rising commodity costs and pressures to reduce
carbon emissions. In addition, unique infrastructure Manufacturers in all parts of the world are looking
challenges create efficiency obstacles for operations for better ways to meet retailer and consumer
in both mature and emerging markets. needs, including:
In mature markets, consumer goods manufacturing − Cost-effectively adapting manufacturing and
and supply chain operations are well established, but packaging processes for point-of-sale customization
that brings as many issues as benefits. Traditional and differentiation;
manufacturing operations were designed to utilize
standard high-volume, highly automated equipment − Optimizing the supply chain network and
to maximize productivity and capital investments, organizing deliveries to support smaller, more
and reduce labor costs. Corresponding supply chain frequent orders; and
goals were to use standard package sizes shipped
in truckload quantities to minimize transportation − Introducing flexibility into complex, high-cost
costs, support mechanized distribution centers and supply chains.
Primary Packaging Secondary Packaging
Traditional FMCG Supply
Chain Network
FMCG Manufacturing FMCG Distribution Center Retailer Distribution Center Retail Store
or
Third Party Cross-Dock
Figure 1
PAGE 5

6. These objectives can be accomplished through emerging markets, FMCG companies have already
improved manufacturing and distribution supply outsourced manufacturing as a means to enter the
chain strategies. While FMCG supply chains have market since, initially, there is insufficient demand
continued to evolve, opportunities remain to profitably to require a dedicated manufacturing facility. In
meet new challenges. As retailers and consumers in mature markets, the shift to smaller, more frequent,
emerging markets follow the lead of modern trade customized orders requires shorter production runs
in mature markets, manufacturers can look to some or specialty equipment that is not available on all
of these same efficiency and productivity manufacturing lines.
opportunities to capitalize on new sales growth.
In either scenario, manufacturing and packaging
Strategies for Creating More processes for some consumer goods can be
Responsive, Efficient and Cost- outsourced to an appropriately equipped and
Effective FMCG Supply Chains qualified distribution center to bring the product
closer to the end customer. Outsourcing
This paper discusses four supply chain strategies manufacturing can increase asset utilization, reduce
that can help manufacturers meet new market new capital investments, help facilitate product
demands, while also satisfying their own requirements packaging based on regionalized demand and
to operate efficiently and support growth: provide greater flexibility in responding to the
changing marketplace. With this strategy, bulk
− Outsourcing Primary Packaging product or ingredients are shipped to the production
(Contract Manufacturing); facility or distribution center
where it is mixed, if needed,
− Optimizing Secondary Packaging “Retailers will continue and packaged into smaller
(Co-packing) Locations; containers. This is a very flexible
to look for ways to strategy that provides retailers
− Regionalization of Distribution customize. For our supply with the different package sizes
Networks; and they require, including the
chain, it is about speed to smaller packaging sizes for
− Horizontal Collaboration. market in a cost-effective convenience and dollar stores.
These strategies can be used and sustainable way.” For the FMCG manufacturer,
alone or together as part of an outsourcing saves costs and
Source: FMCG Manufacturer, provides flexibility for both
integrated solution that simplifies
North America operations and marketing.
and drives costs from FMCG
supply chains. While these Outsourcing reduces the time
practices are not new, to benefit and complexity required to
all parties in the FMCG supply chain, they need to change manufacturing lines that support product
be better integrated and streamlined from design launches or shorter promotional runs. And flexibility
through execution. can increase by shifting primary packaging into the
distribution center network, since final packaging
decisions can be postponed. This allows marketers
Strategy 1: Outsourcing Primary Packaging to delay decisions on product customization based
Although the outsourcing of primary packaging on distinct demographic or cultural differences.
has been around for decades, it is experiencing In the end, product moves less frequently,
renewed interest from companies entering transportation costs are reduced and the product
emerging markets and those trying to streamline is packaged closer to the local distribution points
existing operations in mature markets. In many and the end consumer.
PAGE 6

7. Co-locating secondary packaging in an existing
Strategy 2: Optimizing Secondary distribution or manufacturing location also
Packaging Locations eliminates transportation to and from the co-
Warehouse club stores have long used customized packer, reducing carbon emissions, minimizing
displays and promotional packaging as transportation costs and eliminating potential
merchandising tactics to attract customers. However, product damage. Additional overhead cost savings
this strategy has proliferated as major retailers are can be achieved through improved facility use
increasing their use of customized packaging, and eliminating resource redundancy, particularly
product sizes and promotional bundles to in campus operations where trained labor is
differentiate themselves in the marketplace. readily available to support special projects. By
using resources from within
With the rate of custom- the campus, the manufacturer
ization on the rise, secondary Campus Operations can avoid maintaining extra
packaging has become an staff to support co-pack
important competitive projects or hiring less productive
advantage in the FMCG
A typical campus site temporary labor. In addition,
supply chain, because it operated by a 3PL product security and visibility
supports product promotions can be better controlled when
and provides the ability to vary encompasses numerous product moves less frequently,
pack sizes by repackaging facilities that offer particularly in emerging markets
finished goods into multipacks, where counterfeiting and theft
assortments and bundles. dedicated and shared are growing concerns.
Demographic-based use space. Located near
customization also provides Strategy 3:
FMCG manufacturers an intermodal hubs and Regionalization
opportunity to compete against staffed with administrative of Distribution Networks
private labels by assembling like
products in more appealing value as well as facility support In mature and emerging markets,
or combination packs to create many of the top FMCG
personnel, these sites manufacturers have moved away
increased shelf differentiation.
offer a full range of from a centralized distribution
The secondary packaging process model in favor of a regional
transportation, distribution center (RDC) network
can be inefficient and costly,
since many manufacturers ship warehousing and or cross-dock network that
product out to co-packers for positions product closer to
customization, which then
packaging services to customers. This strategy enables
ship it back to the plant or multiple customers. shorter order lead times, which
a distribution center. For these allows retail customers to respond
companies, consolidating See Figure 2 quicker to fluctuating consumer
secondary packaging operations demand. It also reduces retail
into an existing facility allows store inventory, product
them to postpone customization closer to obsolescence and security burdens that come with
consumption and avoid adding steps and time to managing large volumes of product in some regions.
the production process. This helps reduce order
lead times, avoid carrying unnecessary inventory, Manufacturers can reduce both inbound and
enables just-in-time shipment of floor-ready displays outbound transportation costs by locating RDCs
and products for advertised promotions, and can or cross-docks near the plant or in campus
result in less SKU and material obsolescence. operations that provide access to intermodal
facilities. Campus-based sites also offer additional
PAGE 7

8. space, flexible labor availability and the opportunity
for multi-manufacturer collaboration for shared
warehousing and transportation, as shown in Figure 2. “Collaboration is a challenge
in most markets. Everyone
While some FMCG companies already have RDC
networks in place, the existing locations may be the seems positive about the
result of acquisitions or facilities built for distinct product idea, but bringing it to
lines. These companies may consolidate into fewer,
larger RDCs in more strategic locations for greater practice and gaining
efficiency and savings.
benefits are difficult. We
Strategy 4: Horizontal Collaboration need trust and efficient
Horizontal supply chain collaboration among
solutions to make it work.”
FMCG manufacturers involves sharing warehouse
Source: FMCG Manufacturer, Europe
space and/or consolidating smaller shipments of
multiple manufacturers into more economical
truckload shipments going to the same retail
customer. In many emerging markets, collaboration This type of strategic collaboration between FMCG
is a cost-efficient way to establish and serve manufacturers to reduce costs and improve
remote areas that have low population density efficiencies is an idea that has been around for
or infrastructure challenges. And in mature some time. However, competitive concerns as
markets, it can help meet the demands of the well as cost- and savings-sharing complexities
retailer as order and shipment sizes shrink. have stalled progress.
Regional Campus Operation
Dedicated and Shared-Use Facilities
FMCG Manufacturer #1
Distribution Center
(Packaging Included)
Flexible
Labor
Retailer Distribution Center
MFG #2 MFG #3
FMCG Manufacturer #2
Distribution Center
(Packaging Included)
FMCG Manufacturer #3
Figure 2
PAGE 8

9. Manufacturers across the world are now looking meet retailer requirements without incurring
seriously at collaboration as a way to drive supply additional costs. Collaboration offers the economies
chain efficiencies, share costs and reduce carbon of scale needed to procure flexible storage, packaging
emissions in support of sustainability strategies. and transportation solutions.
A first area of focus is typically collaborative freight Integrating Strategies for a More
consolidation. Manufacturers can save significant Streamlined Supply Chain
costs on the smaller, more frequent deliveries that
retailers are increasingly demanding – or in emerging With the new reality of smaller, more frequent shipments,
markets where stores have less shelf space and shorter lead times and fluctuating economic conditions,
consumer demand is still building. price-driven logistics decisions that do not anticipate
and support quick response to consumer and retailer
Shared warehousing provides each manufacturer expectations can do more harm than good.
flexibility, because space can be configured to meet
fluctuations in demand, which results in greater Traditional approaches of bidding out individual
optimization of assets. locations or services can take costs out of the business
in the short term and offer immediate business impact.
Value-added services such as packaging, However, in the long term, managing multiple suppliers
consolidation and merge-in-transit can also be with limited integration and connectivity can result in
provided. The cross-docking capability is particularly additional administrative costs and inefficiencies.
beneficial for manufacturers that fulfill retail orders
from multiple plants in smaller quantities. By merging
shipments at the cross-docks, manufacturers reduce A recent industry report
transportation costs and decrease stock transfers calculated that logistics
while retailers achieve receiving synergies.
costs alone consume, on
average, 6.8% of a FMCG
Store-Ready Pallets
manufacturer’s annual sales.
Pallets created by product category
Source: The GMA logistics benchmark
(e.g. health and beauty) can be report, March 2010
assembled at cross-dock locations
prior to store delivery. These In emerging markets where securing accurate cost,
store-ready pallets contain service and product data is already challenging,
buying transportation, warehousing, packaging
products from multiple man- and other services separately creates even greater
ufacturers for reduced freight inventory and visibility challenges. And with multiple
suppliers, trying to apply standard operating
costs and improved receiving procedures or trace product damages becomes
synergies at the retail outlet. increasingly difficult.
In the end, if products are moving more frequently
With enough volume and coordination, “store-ready” or service levels cannot be met due to the longer lead
pallets can be built. This decreases retail receiving costs time required to make extra moves between
by allowing shipments to bypass the retail DC and be manufacturing, packaging and distribution partners,
delivered in truckload quantities directly to the store. the impact may be higher total landed costs and lost
sales for both FMCG manufacturers and retailers.
Collaboration can also be a particularly effective Figure 3 illustrates a streamlined supply chain network.
strategy for mid-sized manufacturers that struggle to
PAGE 9

10. Streamlined FMCG Supply Chain Network
Campus Operation -
Dedicated or Shared-Use Facility Mature Market
or
FMCG Manufacturers Distribution Center
(Primary & Secondary Retailer Distribution Retail Store
Packaging) Center
Emerging Market or DC Bypass
Outsourced Primary
Packagers
Third Party Cross-Dock Retail Store
Figure 3
Strategic Role of Third-Party Conclusion
Supply Chain Partners
The consumer dynamics created in both developed
Achieving optimal efficiency takes knowledge and emerging markets by the global economic crisis
and control over all the moving parts of a supply are likely here to stay. As retail channels proliferate
chain. Having a partner with the knowledge and and retailers mount new strategies to capture
the resources available to support these challenges market share and extend geographic reach, FMCG
is critical to achieving sales and profit goals, manufacturers need more flexible supply chain
particularly in emerging markets where experience solutions that better position them to capitalize on
with local customs and business practices can new revenue and market share growth opportunities.
make a difference.
The supply chain strategies outlined in this white
A third-party logistics provider that can offer network paper not only deliver the flexibility and cost
design and optimization, primary and secondary efficiency dynamic retail channels demand, but
packaging support, campus-based warehouse and also create the foundation for improvements in
transportation solutions, labor management, real quality and service that lead to a more sustainable
estate services, regional expertise, and collaboration competitive position.
opportunities will be equipped to deliver the service,
flexibility and value needed to remain competitive
in any market.
These providers can also offer the visibility and
control needed to better understand and manage
the increasing costs to serve both retailers and
consumers, supporting long-term sales and
profitability goals that reach far beyond the
supply chain.
PAGE 10

11. ABOUT EXEL
Exel is the North American leader in contract logistics, providing customer-focused solutions to a wide range of industries
including automotive, consumer, retail, engineering and manufacturing, life sciences and healthcare, technology, energy and
chemicals. Exel’s innovative supply chain solutions, skilled people and regional coverage bring together all aspects of contract
logistics in addition to a wide range of integrated, value-added and specialist services. Exel is a wholly owned entity of Deutsche
Post DHL, the world’s leading logistics group.
For more information about Exel’s solutions for the consumer sector visit: www.exel.com/consumersolutions.
Web site: www.exel.com
Email: consult.americas@exel.com
Phone: 800.272.1052 or 614.865.8500
ABOUT DHL SUppLy CHAin
DHL Supply Chain is the global market leader in the logistics industry with more than $18 billion in annual revenues and a
presence in more than 60 countries and territories, including Mexico, Brazil, Argentina and Chile in Latin America. A worldwide
network of 120,000 associates and 2,400 warehouses and sites offers customers superior service quality and local knowledge.
Innovative solutions create competitive advantage for customers and span the entire supply chain including supply chain
management and consulting, warehousing and distribution, value-added services and managed transportation. DHL Supply
Chain is a division of Deutsche Post DHL.
For more information about DHL Supply Chain’s solutions for the consumer sector visit: www.dhl.com/consumersolutions.
Web site: www.dhl.com
Email: consult.americas@dhl.com
REFEREnCES
“2010 Food, Beverage, and Consumer Products Financial Performance Report: Forging Ahead in the New Economy,” Grocery Manufacturers
Association & PriceWaterhouseCoopers
“State of Retail Logistics - Strengthening Cross Channel Supply Chain Execution,” April 2010, Aberdeen Group
“Private Label 2009 - Game-Changing Economy Taking Private Label to New Heights,” September 2009, Information Resources, Inc.
“Private label ratio soars,” August 5, 2010, Inside Retailing
©2010 Exel. All rights reserved throughout the world. Trademarks or registered trademarks are property of their respective owners.
While every precaution has been taken to ensure accuracy and completeness in this literature, Exel assumes no responsibility, and disclaims all liability for damages resulting
from use of this information or for any errors or omissions.
PAGE 11

12. www.dhl.com www.exel.com
EX-7060
November 2010