Future forms of the FMCG supply chain

Date : 26 September 2018

James describes some short and long term forces of change affecting FMCG supply chains, and explores whether Brexit could be the prompt for some fundamental rethinking.

Approaches to Brexit

Brexit is looming closer and the approaching deadline is focusing minds in FMCG businesses, in both the UK and the EU.

If, as now seems likely, Brexit occurs at the end of March 2019 without a trade deal – or, at least, a transitional deal – in place, FMCG supply chains crossing the UK border are likely to be disrupted to some degree.

This applies to goods passing in both directions and also to goods passing through the UK on the way to another destination, such as goods sent from mainland Europe to Ireland.

Most businesses are currently focused on preparing for - and protecting against - anticipated short-term impacts, although lack of clarity around Brexit outcomes makes this a somewhat speculative exercise.

IGD’s industry research has shown that some businesses are responding by acquiring extra storage space, building up buffer stocks, working with partners and so on.

These approaches share a key attribute: they reflect a desire to ride-out Brexit disruption, a desire to maintain “business as usual”, in spite of unusual circumstances.

This mindset is to be expected, given the success criteria against which supply chain professionals are measured: correct order fulfilment, minimal cost, on-time delivery and so on.

This mindset also reflects a desire to focus on shopper experiences, offering good service and minimising any shock effects.

A new normal

Sooner or later, however, Brexit will end.

Stability will eventually return and FMCG businesses will need to develop new supply chain structures, optimised for the “new normal”, whatever it is.

It is interesting to speculate on what post-Brexit supply chains might look like and how they may evolve over the longer term.

To some degree, this will depend on the nature of the final UK / EU trading arrangement and other, associated matters such as agricultural policy.

If cost structures change as a result of Brexit, then supply chains will naturally respond, as businesses seek to minimise cost.

Such changes may involve moving factories or storage facilities around, adopting new routes, changing ranges or even re-working individual SKUs. This again could apply both within the UK and the across the EU.

Anything is possible, although higher-cost and longer-term projects will presumably require more evidence to support them.

What else is possible?

This, however, may not be the end of FMCG supply chain evolution, because these changes continue to focus on preserving “business as usual”.

They would not, in themselves, address other important challenges, but Brexit may create a rare cognitive opportunity to go further and to attempt a more fundamental, more adventurous redesign.

There are a number of strategic requirements that might be fulfilled, especially in the area of improving sustainability.

This was recognised as a requirement before Brexit emerged and it will remain a requirement once it is resolved. Sustainability is, itself, a complex set of inter-connected issues.

Possible supply chain consequences for FMCG businesses could include, in order of increasing business priority:

  • Plastic reduction – In January 2018, the UK government has published plans to eliminate “avoidable” plastic waste by 2042 1.
    Given wide use of plastics across the FMCG supply chain, achieving this would mean a significant re-think and redesign of current activities and products.
    Attention is being devoted to this project at the shopper-facing end of the supply chain, but plastic is in use higher up the supply chain as well.
    An example is the stretch-wrap, used to secure goods to pallets – could this be eliminated or replaced in future supply chains? Would alternatives be compatible with current equipment? 2
     
  • New vehicle types – Multiple governments have announced plans to phase-out use of fossil fuels for transport, at least for cars. At the same time, support for alternatives is growing.
    Electric cars and HGVs are already available. The Netherlands and Germany aim to end new production of conventional vehicles by 2030, the UK and France by 2040.
    Older vehicle types will presumably remain on inventory after cut-off dates, but new vehicle types are likely to be in wide use during the working lives of current supply chain assets (eg: DCs).
    Indeed, they are likely to be in widespread use within the working lives of many of the supply chain professionals that are (hopefully) reading this blog.
    This means that any supply chain rebuild should account for the likely needs of new vehicles when designing and locating assets.
    Similar points might be made regarding emergence of self-guided goods vehicles and other more futuristic possibilities, such as aerial drones.
     
  • Recovery, reuse and recycling – The UK government has issued documents outlining plans to create a “regenerative circular economy” 1.
    This would presumably involve capturing materials that would otherwise be wasted and recovering them for reprocessing.
    Executing this plan may mean businesses extending their responsibility for materials further down the supply chain, taking responsibility for waste as well as products 3.
     
  • New food production technology – New techniques are becoming available for producing food in more sustainable ways – cultured proteins and hydroponic farming and algae-culture for example.
    Deployed at scale, these technologies could transform the “upstream” food supply chain, eliminating some steps ((eg: animal breeding and fodder production) along with some vehicle movements.
    Food production could also be detached or partially-detached from land, allowing primary production to move closer to end-users.

FMCG businesses will have a lot to get on with as Brexit proceeds, preparing for possible disruption and seeking to maintain availability for shoppers.

But, ideally, they should seek to play a, long game, with one eye always on their long-term vision for supply chain development.


Notes and sources

1 A Green Future – Our 25 year Plan To improve The Environment, HM Government, January 2018
2 Facilities exist to recycle pallet wraps and reusable alternatives are available – Sunnice of China is one business offering these
3 In May 2018, Tesco announced its aspirations for a “closed loop” package recycling system, calling on the UK government to support this with infrastructure investment

James Walton

James Walton

Chief Economist

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