Industry executives and experts share their predictions for 2022.  Read them in this 14th annual VMblog.com series exclusive.

CPG Manufacturing 2022 - You Have Come to the Fork in the Road; Take it!

By Stephen Dombroski, Director Consumer, Food & Beverage Markets; QAD, Inc.

Over two years have passed since the world was introduced to the Coronavirus. We are still looking and hoping for a return to normal. I believe, at this point in time, that if there ever is a return to normal, it won't happen in 2022. We are dealing with virus variants and nearly hundreds of disruptions spawned by the virus for society, manufacturers and the supply chain as well as existing disruptions whose fires Covid-19 have accelerated. Manufacturers of consumer goods, retail purchased products and food and beverage items have had to deal with a great deal of hurdles through the pandemic that is shaping the future. And, if you asked many of the executives in these businesses what that future is, they would probably tell you they simply don't know. So in terms of how Consumer Products and Food & Beverage companies move forward and strategically plan for the future, there almost isn't a right or wrong direction as disruptions are changing the marketplace daily. So to play on the words of the late, great Yogi Berra, you have come to the fork in the road, so take it. There are a number of areas where manufacturers will need to decide in 2022 on what direction to take on a variety of topics. Here are a few with some key predictions.

Continued Consumer Preference Changes - Consumer tastes and product preferences have been evolving for years. The pandemic has simply accelerated it. Having to be at home more than ever before, not eating out, and purchasing challenges have made consumers desire newer products quicker. The Covid-19 culture change of learn, work, eat and play at home gave manufacturers the biggest test market for new products. Consumers started purchasing products that typically were not big sellers, and experimenting with items they have never tried. This gave manufacturers the ability to be creative with the introduction of new products, and they had to do it fast, which has re-designed the process of how manufacturers introduce new products. This will not slow down. Consumers will continue to challenge manufacturers on a variety of fronts. Sustainable, plant-based health concerns (gluten, sugar, dairy-free, etc.) products will be demanded by consumers and manufacturers will have to be quick to introduce these to stay competitive.

The Value Chain and E-Commerce - There are more ways for consumers to purchase goods than ever before. Online sales had been increasing steadily prior to the pandemic, but they have since exploded exponentially. Again, this will not slow down. Manufacturers are beginning to see that this opens up yet another value chain "spoke" for themselves which is self managed e-commerce. Rather than dealing with a middleman, manufacturers in all vertical sectors (even food) are beginning to start their own e-commerce businesses. This gives added revenues and could give added headaches. Manufacturers need to have the processes and systems in place to manage this business and reach the consumer for this to work. However, if managed properly, external costs of sales could be reduced and more control could be given back to the manufacturer. This will take tremendous infrastructure, new processes and new systems, but it could also be extremely profitable. It would add another level to the value chain and further emphasize the need for a complete Sales and Operations Planning (S&OP) process if one is not already in place.

The Use of Contract Manufacturing - Contract manufacturing or co-packing has assisted brand manufacturers for years to assist in seasonal product production, new product introductions, or emergency production management. With the continued growth of next day delivery, customized products, volume of product proliferation and other issues, manufacturers need to have a physical presence in more geographical areas than they did in the past. It would cost manufacturers millions to build facilities in many of the markets where demand is increasing and where consumers are looking for quicker delivery. This could bankrupt the business. However, not satisfying consumer needs for instant gratification and satisfaction would be detrimental to a manufacturing business as well. The answer is in contract manufacturing (co-packing). Regional contract manufacturers could give brand manufacturers the regional presence needed to meet and satisfy the increases in demand without the added costs to build and maintain facilities. In addition, the hiring and on-boarding of a contract manufacturer will take far less time than it would to build new facilities. This will open up new markets and keep manufacturers competitive.

The Return of the Milk Man and the Milk Box - When I was growing up in a land and time far, far away, it was during the era of the milk man and the front porch milk box. In fact, the house we currently own is over 100 years old and has an old fashioned milk man's door built into the house. Obviously it is no longer used; however, this concept is starting to come back and with a vengeance with new technologies. Home delivery of products is very common as stated and growing. But, it might not apply to certain foods, and what about perishable food? If an online shopping delivery service is going to deliver perishable foods to a consumer and they are not home, what happens? Appliance manufacturers are working on the electric, refrigerated and frozen "milk boxes" that can aid in the home delivery of food products. Rather than the old insulated milk box, these are refrigeration and freezer units that are mounted to a home. Access is possible from both inside and outside. Delivery services have a one time code that can be used to deliver the goods and the consumer's entry door is locked from the inside to provide home and product safety. This is a new market that is still at the early stages of design and inception. However, if it succeeds and moves forward, this could change buying habits and disrupt the entire supply chain.

Demonstrable Sustainability Practices and Digital Manufacturing - Sustainability was one of the hottest topics prior to Covid-19 but again, like many other subjects, it has exploded since the pandemic. Consumers are refusing to do business with manufacturers that do not have a demonstrable and documented sustainable footprint and strategy. Manufacturers need to demonstrate this to the consumer and it goes hand in hand with the embracing of digital manufacturing technologies. Smart labels, scannable codes, and QR codes that consumers can scan either physically at the store or during an online purchasing experience will be required for consumers to glean information on ingredients, nutrition information, sustainable supply and other valuable information. Labeling and product packaging innovations also fit in this category and issue as well. 2022 will be a make or break year for many manufacturers that do not embrace the sustainability movement. If they have not begun putting the processes and systems in place to become a sustainable enterprise, they will need to move quickly.

Manufacturer Owned and Managed Transportation Fleets - Disruptions in the transportation industry have been impacting CPG supply chains for several years. Truck driver shortages combined with many Less Than Full Load Deliveries due to next day delivery and the increases in the number of goods and destinations of goods have seriously impacted CPG manufacturers. To get control of this issue, manufacturers are beginning to and will continue to embrace a "Back to the Future" mentality and go back to company owned fleets. This practice could have a number of advantages if managed properly. Manufacturers can hire their own drivers and offer benefits that can compete with the 3PL providers. Manufacturers can then manage transportation and distribution costs and processes by having this control. Again, the right connected processes and systems need to be in place and managed with the goal of improving flexibility and increasing customer service.

Many companies could not wait to turn the page on 2020 and return to some sense of normalcy in 2021. That really did not happen. So as we enter 2022, we find even more disruption, uncertainties and questions about where and how the CPG industry will operate going forward. The return to normalcy, I believe, has already happened as uncertainty has become the new normal. But, this provides a significant opportunity for manufacturers to invent what the new normal is by approaching the fork in the road and taking it. We are in a new world, take a chance.

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ABOUT THE AUTHOR

Stephen Dombroski is QAD's Director for the Consumer Products and Food & Beverage vertical markets.