The FMCG industry comprises many services, including manufacturing, distributing and retailing. With the industry moving at an exceptionally rapid pace, there are constant changes being made to brands within the marketplace. On top of this, margins are often razor-thin, which means that reducing procurement costs is a vital strategy for maintaining profitability and competitive edge. At Accelerate, we understand the unique challenges of the FMCG sector. We are a team of experienced, entrepreneurial procurement leaders who have led and transformed global procurement functions and service provider organisations. Here, we explore key strategies to help reduce procurement costs in the FMCG sector.
1. Streamline Supplier Selection and Management
IN FMCG, as in any sector, choosing the right suppliers is crucial for cost efficiency. We would always recommend conducting a thorough supplier analysis to identify those who offer the best value in terms of price, quality, and reliability. Consider consolidating your supplier base to negotiate better terms and leverage bulk purchasing discounts. Building long-term relationships with key suppliers can also lead to more favourable pricing and payment terms.
2. Embrace Technology and Automation
Utilising procurement software and automation tools can streamline processes, reduce manual errors, and enhance efficiency. Implementing an e-procurement system allows for better tracking of orders, improved spend analysis, and more effective supplier management. Automation can also help reduce administrative costs, freeing up resources to focus on strategic procurement activities.
If you have questions or concerns around implementing systems, a procurement consultancy such as Accelerate can help. We can recommend the systems that will be best-suited to your business, and oversee everything from integration to change management.
3. Implement Just-In-Time (JIT) Inventory Management
Just-In-Time inventory management reduces the costs associated with holding and storing excess inventory. By aligning procurement closely with production schedules, you can minimise inventory levels, reduce waste, and lower storage costs. However, JIT requires robust coordination with suppliers to ensure timely deliveries and avoid production disruptions.
4. Negotiate Long-Term Contracts
Long-term contracts can provide cost stability and predictability. By committing to longer-term agreements, you may negotiate better prices, fixed rates, and more favourable terms. Suppliers often appreciate the guaranteed business and may offer additional discounts or benefits in return. Something that has never changed in procurement is that it is a people-centric industry: human relationships are still at the heart of successful procurement, and long-term, mutually beneficial partnerships are a cornerstone of this.
5. Enhance Supplier Collaboration
Following on from point 4, in a similar vein- collaborative relationships with suppliers can lead to cost savings and innovation. Engage suppliers in discussions about cost-reduction opportunities, process improvements, and product enhancements. Jointly working on efficiency initiatives can result in mutual benefits, such as shared cost savings and improved product quality.
6. Focus on Total Cost of Ownership (TCO)
When evaluating procurement options, consider the total cost of ownership rather than just the purchase price. TCO includes all costs associated with acquiring, operating, maintaining, and disposing of a product. By taking a holistic view, you can identify hidden costs and make more informed procurement decisions that lead to long-term savings.
7. Leverage Data and Analytics
Data-driven decision-making is essential for cost-effective procurement. Use data analytics to monitor spending patterns, track supplier performance, and identify cost-saving opportunities. Analysing historical data can reveal trends and insights that inform better negotiation strategies and procurement decisions.
A procurement consultancy such as Accelerate can support you when it comes to analysing data and making data-driven decisions. We specialise in procurement analytics- the process of analysing spend data to provide a snapshot of how, what and where money is being spent and how this information can be used to drive business decisions and drive enterprise-wide value. Often, we find that organisations have invested in technology to consolidate global spend and supplier data with nice charts and graphs, however technology alone is inadequate, and true benefit is only derived when context and intelligent experienced insights are applied. The data that is analysed can range from historic procurement spend through to advanced analytics which are used to predict cash flow, budget for future decisions, or improve business performance. Data-driven decisions ensure that purchasing decisions and supplier relationships are managed more effectively, and our team can support you with this if required.
8. Explore Alternative Sourcing Strategies
Diversifying your supplier base and exploring alternative sourcing strategies can lead to cost reductions, and of course these are not the only benefits. In the past, we have discussed the benefits of having a diverse supplier base, and we have explored in depth the benefits of supplier diversity.
Consider sourcing from different geographic regions, evaluating new suppliers, or exploring different materials. Alternative sourcing can provide competitive pricing and mitigate risks associated with supply chain disruptions.
If you are keen to diversify your supplier base, our procurement consultants can help. As a jumping off point, you might like to read our tips on how you can start a supplier diversity programme.
9. Optimise Order Quantities
Optimising order quantities can lead to significant cost savings. Purchasing in bulk may yield discounts, but it’s essential to balance this against storage costs and the risk of obsolescence. Conducting an economic order quantity (EOQ) analysis can help determine the optimal order size that minimises total procurement and inventory costs.
10. Invest in Supplier Development
Investing in supplier development programmes can lead to improved efficiency and cost reductions. By providing training, resources, and support, you can help suppliers enhance their processes, reduce costs, and improve product quality. Stronger suppliers contribute to a more resilient and cost-effective supply chain.