A study analyzing inventory levels and productivity of top retailers and consumer packaged goods manufacturers, including Wal-Mart, Costco, Kellogg, PepsiCo, Hershey, Colgate and Unilever, found that that consumer packaged goods manufacturers failed to significantly reduce system-wide inventory levels during 2007 despite investments in advanced supply chain planning and tracking tools. The study, produced by Archstone Consulting, an independent strategy and operations management consultancy, also found that additional spending on sales and operating planning (S&OP) did not reduce inventory levels either.
Many companies in the consumer packaged goods industry are shifting their attention to incremental channel-specific and product line improvements to focus on top-line growth.
"A surge in new products across the consumer packaged goods and retail industries over the past two years and an increase in off-shore production have absorbed any operational improvements achieved in planning and manufacturing over the last few years," said David P. Sievers, Consumer Products and Retail Practice Leader at Archstone Consulting. "If retail spending weakens further in 2008 given our uncertain economic environment, we predict increased focus on inventory levels across the supply chain as products sit on shelves or in distribution centers longer."
Other findings include:
- After a period of improvement in retail inventory productivity, gains have moderated from mid-2006 through the third quarter of 2007.
- Wal-Mart's recent inventory productivity gains kept pace with those of the last four years, but did not perform as well as the very high expectations set by the retailer just a few years ago.
- The grocery trade continues to look better but the drug channel has seen minimal improvement with efforts likely disrupted by acquisition activity.
- Within the food and beverage sector, inventory productivity is declining slightly among large U.S. manufacturers, while midsize food companies have generally maintained or improved performance.
- New product introductions designed to increase top-line growth have made continuous cost and inventory reductions challenging for both consumer packaged goods companies and retailers (new product introductions for the consumer packaged goods industry reached 1,700 in 2006 representing growth of 25% over the preceding 3 years and a similar growth rate is forecast for 2007).