Delivering the goods
The “last mile” of the supply chain, in which products reach the hands of end consumers, is being transformed as faster and more convenient methods of delivery become available seemingly every week. Online shopping is complemented with 2-hour to 2-day delivery, in-store pickup, delivery lockers and at-home lockbox delivery. Consumer packaged goods (CPG) companies can position themselves to benefit from the changes that are reinventing freight and logistics by being data driven, nimble, collaborative and ready to reengineer certain business processes.
One way to measure the scope of change in both consumer behavior and the market for consumer goods is to look at the number of packages shipped yearly around the globe. Parcel growth isn’t growing — it’s exploding.
A 2017 Parcel Shipping index compiled by Pitney Bowes showed that parcel shipments grew from 44 billion in 2014 to 65 billion in 2016, a 48 percent increase over 2 years.1 The company’s research projects that parcel growth will continue at a rate of as much as 28 percent through 2021. That astounding growth and its effects are evident in the function that crosses and connects all parts of the CPG supply chain — eight and logistics.
The “last mile” of the supply chain, in which products reach the hands of end consumers, is being transformed before our eyes as new methods of delivery become available seemingly every week. Even though futuristic delivery options such as driverless cars and drones are coming soon, consumers already have more convenience than ever. Online shopping is complemented with 2-hour to 2-day delivery, in-store pickup, delivery lockers and at-home lockbox delivery — even, one day, delivery to the trunk of your car.
Behind the scenes, change is even more fundamental. Retailers, CPG companies and third-party logistics providers are circling one another in a high-stakes game of musical chairs — trying to figure out who their customers are, what capabilities to build, what to buy, and hoping they’ll find a safe place to land when the music stops.
This paper considers the implications of the changes happening in freight and logistics for CPG companies and what they can do to best position themselves for the road ahead.
Shifting relationships
As other papers in this series have highlighted, the evolving relationship between end consumers and CPG companies is a key driver of change in the industry. The proliferation of digital, consumer-oriented commerce channels has created a market that CPGs can’t ignore. By some estimates, the online, consumer-direct model will drive up to 20 percent of CPG revenues in a couple years — a sizable opportunity.
On the flip side, the market’s unique characteristics — especially the cost to package and deliver small orders in high volume — makes this market a challenge to serve profitably. Producing and shipping a container of shoelaces is something the typical manufacturer could manage easily and profitably. Producing single pairs of custom-colored laces, packaged and shipped to individual customers, is an entirely different matter.
New ecosystems
If it’s any consolation, retailers, CPGs and third-party logistics companies are all trying to understand what these changes mean, how they affect their businesses, and who should be dealing with whom. It’s a challenge to keep up with the pairings and splits that occur from one week to the next.
Should a trucking company turn its attention to Amazon to capture its business, or would that affect the trucking company’s relationships with the retailers it serves? To what extent should a CPG build its own distribution channel? How closely do third- party logistics companies align with new last-mile options such as Uber Eats?
The complicated, shifting dynamic that’s occurring among these groups is amplified by a fundamental disintermediation of logistics and shipping. New entrants to the industry are shaking up the rules for the way shipping has worked for decades.
Services such as FLEXE are adapting concepts of the sharing economy to warehousing and fulfillment. Others, such as Convoy, are making it easier to identify cost savings in freight shipments by crowdsourcing loads to fill trucks. UPS SurePost represents a mash-up that allows UPS to leverage its back-end parcel management with final-mile delivery handled by the U.S. Postal Service. Expect many more entrants and pairings to come.