Brands Must Meet Sustainability Goals
99% of CEOs of large companies believe that addressing sustainability challenges is essential for the success of their business, and organizations across industries are getting pressure from consumers, investors, and even employees to operate more sustainably. As a result, CPG companies are increasingly implementing environmental, social, and corporate governance (ESG) programs to meet their sustainability goals. ESG is a modern form of corporate social responsibility using a metrics-driven set of standards. This concept focuses on both environmental and social issues related to a company’s performance.
While brands create sustainability initiatives that relate very closely to their business and the type of products they sell, most brands align their sustainability initiatives directly with the UN’s sustainable development goals (SDGs). Additionally, the 26th UN Climate Change Conference (COP26) set a goal of achieving net-zero emissions by 2050, which can be helped along by responsible companies actively reducing waste. Leading CPG brands are actively working towards this mission by implementing new solutions and processes that help them:
- Accurately forecast inventory or proactively address inventory challenges earlier in the product lifecycle
- Prepare for the circular economy and digitize the supply chain
- Manufacture higher quality products
Despite having implemented new initiatives to introduce sustainable processes and solutions across the organization and supply chain, CPG companies are challenged with finding ways to balance operational efficiency, profit, and growth against the need to reduce waste, lower carbon emissions, and use sustainable materials in production. Below are some of the major sustainability challenges facing CPG brands today.
Increasing Prices, Changing Consumer Behavior, and Product Innovation
A significant sustainability challenge for the CPG industry is predicting consumer spending behavior as prices continue to rise. Although consumers have been pressuring brands to implement sustainability measures, sustainable products are usually more expensive to produce—resulting in even higher price tags for the consumer and potentially fewer sales for the brand. Changing consumer behavior resulting from recent movements around minimalism and ethical and intentional consumerism can also potentially influence consumers to buy higher quality goods less frequently. With inflation, increasing prices, and fewer promotions also added to the mix, CPG brands now need to proactively address slow-moving and excess inventory issues down the line as a result of consumers purchasing less and sales volumes falling off.
CPG companies in particular also rely on constant product innovation to drive growth and promote consumer spending behavior, but this can also pose issues as many innovations often fail to catch on with consumers and as a result sell poorly. If products don’t sell as expected, even more slow-moving and excess inventory is created, which can force companies to either discard or destroy the underperforming goods.
Threats of Disruption and the Need to Digitize the Supply Chain
Even with strong planning solutions in place, there are several external, uncontrollable factors that can disrupt sustainability initiatives and create unexpected inventory challenges, such as economic instability, changing consumer spending habits, unexpected weather changes, and forecasting errors.
A prime example of this is the ongoing supply chain disruptions resulting from COVID-19. In particular, CPG brands experienced difficult inventory challenges due to what’s known as the bullwhip effect. The bullwhip effect is a phenomenon in which a change in demand or supply creates larger fluctuations along the entire supply chain, and any sudden disruption in the supply chain can lead to two extreme situations — inventory shortages and excess inventory. In the height of COVID-19, there was widespread panic-buying across consumer goods categories and brands scrambled to ramp up production to meet increased demand and keep stores stocked. While there were severe inventory shortages initially, the increased reactive production eventually led to significant levels of slow-moving and excess inventory down the line when demand normalized.
Additional CPG supply chain challenges that still linger include:
- Port closures
- Labor shortages
- Shipping delays
- Part shortages
All of these factors continue to make inventory planning and disposition difficult, and CPG brands as a result are struggling with unexpected excess inventory that they must try to sell or donate. Another complication is the fact that many consumer goods have expiration dates and cannot be sold or donated after a certain time—at this point, the brand may need to resort to discarding or destroying the goods.
To address potential future disruptions, brands are implementing more automation throughout supply chains through the use of artificial intelligence and IoT (Internet of Things) technology, allowing for full inventory visibility, more informed decision-making, and more precise management throughout the entire production and disposition process.
For greater visibility into inventory, companies are using platforms like INTURN 360, which allow them to easily identify slow-moving and excess inventory and sell into other channels earlier in the product lifecycle. With solutions that empower proactive decisions to prevent new inventory challenges and quickly address existing ones, brands can greatly reduce the risk of contributing to unnecessary waste and destruction.
Measuring Impact and Results
While many brands have put sustainability initiatives in place, leaders are finding it difficult to measure their actual impact or progress.
For example, GRI conducted a study that included over 200 international companies and found that while 83% expressed their support of the SDGs, only 40% made specific and measurable commitments to achieve those goals.
The problem seems to be a combination of factors, including:
- A lack of generally accepted standards with clear and specific metrics
- A lack of education for consumers and investors on brands’ sustainability performance
- A lack of digital solutions to provide more visibility and tracking
With regard to visibility and tracking, brands have made significant progress in tracking towards waste reduction goals by implementing solutions that optimize the production and planning process. However, there remain tremendous areas of opportunity across the supply chain where brands can implement solutions to achieve greater visibility. As an example, one area that brands may not be actively tracking is the impact of their excess inventory management and sales process on reducing waste, extending the lifecycle of a product, or reducing carbon emissions.
For CPG brands to meet their sustainability goals, there are many hurdles for them to overcome. From dealing with changing consumer behavior and global events to maximizing inventory visibility and reducing waste in a lean, fast-moving supply chain, numerous factors can come together to derail a sustainability campaign, and companies need to be able to proactively rise to the challenge.
INTURN leads the industry in predictive inventory optimization, helping brands solve the problems excess and slow-moving inventory pose to sustainability efforts. Get in touch to learn how INTURN 360 can help take your CPG brand into a zero-waste future.