Introducing a new brand of fast-moving consumer goods (FMCG) requires much more than a great product and beautiful packaging. Behind every successful consumer business is an efficient supply Network that allows a company to procure raw materials, manufacture and store products, transport them to sale points and ensure customer access to goods.
For an emerging brand, the choice of a supply chain is vital in all stages: from the initial product availability to cost optimization and customer satisfaction. Moreover, an efficient system helps to scale the business in new cities, sell through additional channels and even attract new customers.
This article will tell you what steps you need to take to design the supply chain for a new FMCG brand.
1. Define the Product and Market
First of all, you need to fully understand the product you are going to sell and the market you are going to sell it in. Different product categories have completely different requirements and characteristics.
For example, some FMCG products are packaged foods with specific shelf life and storage requirements. Meanwhile, cosmetics and personal care products may have specific storage conditions, while beverages may have specific weight-based costs. Consumer electronics and other light goods have specific logistics and distribution chains.
Before determining the rest of the Procurement Network, you need to know the following:
Product shelf life
Storage requirements
Expected sales volume
Target customers
Geographic markets
Selling price
Packaging size
Seasonality
Distribution channels
Order frequency
All of this will serve as a basis for the rest of the supply chain.
2. Determine Raw Material Suppliers
Consistent product manufacturing requires reliable suppliers. As a new company, you should aim to avoid high dependence on a single supplier.
Make a list of required materials and packaging. Determine potential suppliers and evaluate them based on several criteria:
Cost
Quality
Minimum order size
Delivery time
Payment conditions
Production capability
Location
Quality certificates
Overall reliability
Keep in mind that cheap materials with poor quality and frequent delays can damage your production in the long run.
For critical materials, you should have alternative suppliers to avoid disruption of your manufacturing. You may also want to negotiate contracts with fixed prices or favorable terms.
3. Choose Between In-house and Contract Manufacturing
You will also need to decide between two most common options for product manufacturing: in-house or contract manufacturing.
While having your own production allows you to have more control over the process and product quality, it requires you to invest significantly in equipment, land, electricity, staff, and paperwork. On the other hand, you can avoid these high overhead costs by choosing the contract manufacturing option.
However, this approach requires extensive research to choose the right manufacturer with sufficient production rates and quality control systems. You should also consider whether this manufacturer will be able to consistently meet your product specifications and quality control requirements.
4. Plan Inventory Levels
Since we are talking about an emerging brand, it is critical to plan your inventory levels to avoid high carrying costs while maintaining product availability.
Your inventory planning should cover:
Raw materials
Packaging
Finished goods
Safety stock
Products with high turnover
Products with low turnover
Use historical sales data to plan your inventory for the most part. For now, you can use market research, competitor analysis, and pilot sales data to estimate demand and set realistic inventory levels.
The main idea is to have enough stock to cover demand and normal seasonal fluctuations without tying too much money in warehouse storage.
5. Plan Warehouse Locations
Based on your sales volume and target markets, you need to plan your warehouse network.
To start with, new companies usually cover only a small sales area. As your sales grow, you may need more warehouse space or several warehouses to cover more ground.
You need to analyze the following:
Location
Space
Rental or ownership costs
Workforce availability
Access and transportation
Storage conditions
Electricity
Security
Loading/unloading infrastructure
Remember that the layout of the warehouse is also important. You should plan the location of forklifts, lifts, and sorters as well as stackable areas. Place the most frequently ordered products within easy reach to streamline the order picking process.
Moreover, you should also have a stock rotation policy in place to ensure that older products are not forgotten in the warehouse and expired. A first-expired-first-out (FEFO) or first-in-first-out (FIFO) policy can help with that.
6. Choose Distribution Channels
To sell your product, you need to choose the distribution channels you are going to use in your sales strategy. For an FMCG seller, there are several main distribution channels:
General trade
Modern retail
Distributors
Supermarkets
E-commerce marketplaces
Company website
Quick commerce
Institutions
Each distribution channel has its specific features and requirements. While modern retail and traditional retail may require you to work with distributors and sales representatives, e-commerce marketplaces and company websites will require you to develop a reliable delivery Network.
To begin with, you should choose the most promising channel for you and start with it. You may also want to develop a multi-channel distribution strategy and sell via several channels at once.
7. Plan Distributor and Retailer Networks
In the case of traditional retail, you will need to work with distributors in most cases. When choosing a distributor, you need to clarify all sales and purchasing conditions.
Make sure to establish the following:
Territory
Price and margin
Credit policy
Order size
Sales targets
Returns policy
Damaged goods
Promotion and marketing policy
Payment terms
Moreover, work with your distributors is not over after signing the contract. You should also track their performance using such indicators as order volume, sales growth, inventory level, payment regularity, and coverage.
8. Plan Transportation and Logistics
Transportation costs can be one of the biggest expenses for an FMCG seller. When building your supply chain, it is important to evaluate different logistics options.
The main advantage of owning a transportation fleet is full control over the delivery process and order tracking. You can also optimize delivery routes to make the process faster and cheaper. At the same time, you need to consider the costs of maintaining the vehicles and hiring drivers.
New companies can also use external logistics companies or couriers. You can also leave the distribution Network to distributors or use local transport companies.
For businesses that sell directly to consumers, last-mile delivery is one of the most critical processes. This is when the delivery company interacts directly with the customer and fulfills the order.
Monitor such indicators as delivery time, order transportation cost, failed delivery attempt, damages, and returns.
9. Implement Supply Chain Technologies
As your business grows, you may need to implement new supply chain technologies to optimize your operations. Depending on your business size, you may want to invest in integrated enterprise resource planning (ERP) software or merely implement a simple spreadsheet.
A good supply chain dashboard can help you monitor the following:
Stock levels
Purchases
Sales
Warehouse inventory
Outstanding orders
Supplier performance
Product returns
Expiring products
Distributor orders
The primary function of these dashboards is to help you keep track of your stock levels, purchase activity, sales, and outstanding orders. Having this data at hand will allow you to quickly spot supply chain issues and resolve them before they affect your sales and customers.
10. Plan Supply Chain Scalability
The supply chain you are planning now needs to scale as your sales grow. It is important to design the system in such a way that you can increase production volumes, work with more suppliers, cover new markets, and launch new products.
As you build the system, keep in mind that you should not put all your eggs in one basket. If you plan to rely on one manufacturer, make sure that they will be able to scale their production as well. The same goes for other links in the supply chain.
You should also think about having substitutes for your primary suppliers so that a natural disaster or political issues will not disrupt your supply chain.
11. Monitor Supply Chain Performance
Finally, you need to track the key supply chain performance indicators (SCPIs) to optimize your operations.
Some of the most important SCPIs for an emerging FMCG brand include:
Inventory turnover
Order fulfillment rate
On-time delivery percentage
Stock-out frequency
Logistics costs per unit
Lead time
Forecast accuracy
Product return rate
Warehouse utilization
Distributor sales performance
Conclusion
Designing the supply chain for a new FMCG brand is a complex process that requires optimizing many factors. The ultimate goal of the supply chain is not only to get your product from the factory to the customer but also to reduce costs and ensure product availability at all times.
As an emerging brand, you should focus on realistic demand forecasts, reliable suppliers, and effective distribution channels. As your sales grow, you should invest more into supply chain analytics and use big data to predict demand, optimize inventory, and scale your operations.
Frequently Asked Questions
1. What is the first step in designing an FMCG supply chain?
The first step is to determine the product, market, demand, shelf life, storage requirements, and distribution chains.
2. Should a new FMCG brand manufacture its own products?
It depends on the situation. While a self-owned manufacturing facility can provide more control and product security, contract manufacturing can be much more cost-effective in the beginning.
3. How much inventory should an FMCG startup maintain?
There is no standard answer. Instead, calculate the inventory based on the forecasted demand, supplier lead time, shelf life, order size, and safety stock.
4. How can an FMCG company reduce logistics costs?
Optimize delivery routes, utilize centralized warehouse storage, avoid overweight and oversized shipments where possible, consolidate smaller orders, negotiate better rates with couriers and logistics companies.
5. Why are distributors important for FMCG brands?
Distributors help FMCG sellers reach more retail stores without having to manage every store directly.
6. What technology is useful for supply chain management?
Depending on the company size, various inventory management software, accounting systems, warehouse management systems (WMS), and order management systems (OMS) can be useful.
7. How can a startup prevent stock-outs?
Track inventory, monitor sales, negotiate better terms with suppliers, maintain safety stock, analyze historical sales data, and manage suppliers.
8. When should an FMCG brand establish regional warehouses?
Regional warehouses become useful when an FMCG seller covers a large sales area and wants to reduce delivery costs and delivery times.
