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CPG supply chain trends: A Q&A with Madhav Durbha

Nov 29, 2024 • 5 min

From empty store shelves during the pandemic to the rise of ultra-fast delivery, the CPG supply chain has faced more disruption in the past few years than the previous two decades combined. As AI and automation reshape operations from the factory floor to last-mile delivery, CPG brands are hustling to turn their toughest challenges into competitive advantages. 

We sat down with Madhav Durba, Group Vice President of CPG and Manufacturing at RELEX, to discuss current CPG supply train trends and what the future holds.  

Q: How do you see the future of the CPG supply chain evolving? 

Madhav: I’ll break it down into long-term and short-term trends. In the long term, climate change is a major red flag, especially for CPG companies in food and beverage that rely on natural resources. 

Supply is becoming increasingly unpredictable, and the intensity of disruptive weather patterns is only increasing. Leaders are worried and looking at these trends carefully while rethinking their company’s role in reducing emissions and making their products and supply chains more sustainable. 

Tightening regulation and government interest in environmental impact is an area to watch for especially in the European Union. 

In the shorter term, the challenges are plenty. Margin compression in CPG is real. Looking at recent earnings results from leading brands, most are talking about the pinched consumer. Price points are under challenge. While CPG companies were able to pass on cost increases to consumers during the recent inflation, consumers are now pushing back. Private label is becoming increasingly competitive, brand loyalty is decreasing, and value formats like dollar stores are picking up more volume too. 

Lowering costs cannot come at the expense of making your supply chain vulnerable to disruptions.

Companies face pressure from both consumers and investors, so getting cost discipline in order is crucial. The supply chain plays a huge role, as these are distribution-intense businesses. However, lowering costs cannot come at the expense of making your supply chain vulnerable to disruptions. 

Geopolitics plays a major role, too. We have simultaneous conflicts going on in the world around us, which is forcing companies to consider nearshoring. “Friend shoring” or “strategic shoring” are other terms I hear, where companies aim to reduce vulnerabilities and increase optionality in their supply chains by sourcing supplies from locations that are friendly to whichever country they are manufacturing and selling. Having more diverse sources of supply is becoming important. 

But balancing these changes isn’t easy. Reshoring could come with higher labor costs. The question becomes how to balance that against transportation costs, as you’re offsetting higher labor costs with lower transportation costs due to reduced distances. 

Q: How have consumer expectations of CPG products evolved? 

Madhav:  

We’re seeing a tale of two economies. On the one hand, people benefiting from record-high stock markets can afford premium experiences and don’t mind spending on luxury. On the other hand, a vast section of society is struggling with inflation and looking to stretch their dollars further. 

This creates different value propositions. Premium consumers want personalized experiences, while value-conscious consumers focus on getting the most for their money. 

Regardless of which side of the economy one belongs, consumer expectations have increased significantly. They’re looking for convenience. They want to order anywhere and have products delivered anywhere – this omnichannel experience is becoming crucial. They’re also looking for personalized offers. When consumers walk into a store, they expect brand owners to know their buying patterns and promote accordingly.  

Direct-to-consumer is also picking up as a channel. Companies are even considering unique products and assortments available only through their websites. Cross-promoting and cross-merchandising are becoming more important, too – think of partnerships like McDonald’s McFlurry with Oreo cookies. 

Consumers are also seeking healthier options. Look no further than how the plant based milk category is expanding in the grocery aisles. Governments are also responding with initiatives, such as the “sugar tax,” as in, levying taxes on beverages with higher sugar content. 

All of these trends apply additional pressure on CPG companies in meeting the expectations while doing so without raising prices. 

Q: What recent innovations in the CPG supply chain do you find particularly exciting or transformative? 

Madhav: AI in supply chain is particularly exciting, especially the concept of touchless planning or touchless forecasting. When companies implement a new supply chain planning system, adoption tends to be around 35–40%, which is pretty dismal. The remaining 60% of people spend their time in Excel spreadsheets, managing data and trying to extract insights. That’s pure drudgery. Traditional planning approaches are not responsive enough to rapid shifts happening in the world around us. AI is better suited to sense and learn from changes and offer course corrections. 

AI has transformative power in areas like demand sensing — constantly listening to purchasing signals from customers and consumers, detecting changes, and understanding effects like product cannibalization. It can also integrate external signals, like predicting increased sales of shelf-stable products before a hurricane. 

The goal is to empower humans and give them superpowers. Let AI handle the repetitive tasks so planners can focus on solving the most meaningful problems for their business. 

Q: How can CPG companies overcome their biggest supply chain challenges right now? 

Madhav: Companies are dealing with multiple constraints: labor shortages, capacity limitations, and extended lead times. I recently spoke with a major CPG brand executive who mentioned it takes 18 months to stand up a production line, whereas it used to take about a third of the time prior to the pandemic. That’s because the lead times are stretching everywhere — the time to bring in raw materials is stretching, and the time to bring in components is stretching.  

Meanwhile, demand is becoming more volatile and unpredictable. There’s a fundamental tension: Lead times on the supply side are expanding due to geopolitical conflicts, shipping disruptions, and climate change impacts (like the recent water level drops in the Panama Canal), while customer expectations for faster delivery are growing. 

Business users need systems that can adapt quickly as the world changes around them.

The key is balancing these constraints while meeting leadership and investor expectations. This is where techniques like optimization, advanced algorithms, and configurable tools become crucial. Business users need systems that can adapt quickly as the world changes around them. 

You need to find value-creation opportunities within your enterprise and extended ecosystem. This means collaborating closely with retailers, staying attuned to consumer trends, and working effectively with contract manufacturers. The goal is to create win-win partnerships across the value chain. 

Q: What advice would you give to CPG companies aiming to stay ahead of supply chain trends? 

Madhav: First, embrace technology, particularly AI. It’s moved past the hype cycle and become mainstream — your customers are already adapting to it. 

Second, bring your employees along on the digital transformation journey. Invest in their capabilities and skill sets. Remember that the supply chain is ultimately a human business. it’s about equipping your people with the right tools to make the right decisions at the right time. 

Third, break down silos. The change must start at the top, ensuring your procurement, production, distribution, customer service, and logistics teams are all aligned. This means breaking down walls not just between organizational silos but in information flow as well. Technologies can help create digital twin models that propagate demand signals throughout your supply chain, from retail consumption back through distribution, manufacturing, and purchasing. Often people work in silos, not because they want to, but because information flow and metrics are fragmented. So, the key is to equip them with the right set of technologies and align the metrics to facilitate collaboration. 

Bringing alignment to these elements is crucial for success.

Read our report: The State of Supply Chain 2024

Written by

Madhav Durbha

Group Vice President, CPG & Manufacturing

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