The Cost of Innovation: Supply Chain Strain

The consumer goods industry is always seeking new ways to drive sales growth. However, many companies fail to account for the costs and complexities of ushering in new products.

The Wall Street Journal reports on a recent supply chain survey, which showed a 32% jump in the number of new products that hit shelves in the past five years. Even with this drastic increase in new products, however, overall sales have only risen by a mere 4%. So what’s the real story behind these numbers?

Simple: companies are not properly accounting for costs that new products add to their supply chains.

The report surveyed 14 large multinational consumer product companies with $250 billion in annual sales revenue. Seasonal fads and new products were found to have barely registered at store check-out lines. In fact, new product sales often came at the expense of original product sales, indicating that consumers are substituting goods rather than increasing consumption.

New products that do not accomplish the lasting effect that companies hope for – which is the vast majority – are often discontinued fairly soon after launch. These short-lived consumer products tend to burden supply chain centers due to erratic changes in inventory needs, as well as additional costs in time, skill, and implementation. It is a wonder that so many developed-market based CPG companies continue to, in a sense, shoot themselves in the foot by putting such pressure on their supply chain for such little return.

Yet there are actionable solutions to these issues. By leveraging systems that utilize data management and analysis, companies can pinpoint exactly where to limit loss and capitalize on trending distribution areas for their new products. This means your business can continue to innovate freely without putting much added pressure on the supply chain. Learn about how Salient’s Margin Minder® integrates sales and inventory data in context with related business activities to achieve a demand-driven supply chain that is not based on statistical guesswork, creating better synchronization between sales and operations.

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