CPG Supply Chain Optimization: From Concurrent Engineering to Contract Manufacturing

How PLM enhances CPG supply chains with concurrent engineering, contract manufacturing, and integrated MRP

Image credit: PEXELS

This blog is the fourth in a five-part series by guest blogger Lionel Grealou, consultant and founder of Xlifecycle Ltd. and author of the virtual+digital blog. In part 1, Lionel discussed the pivotal role of PLM data in enhancing the reliability and insights of R&D and supply chain decisions. In part 2, he considered how PLM capabilities are essential for manufacturers to accelerate time-to-market and launch products “right the first time.” In part 3, Lionel explored why PLM is about adapting to consumer behaviors while maintaining regulatory compliance.

Today’s post discusses how concurrent engineering accelerates product development and how contract manufacturing offers flexibility and cost savings.

Consumer Packaged Goods (CPG) supply chain optimization emphasizes the need for streamlined operations from concurrent engineering, where product design and development processes occur simultaneously, to contract manufacturing, which involves outsourcing production to specialized firms. Effective Product Lifecycle Management (PLM) processes, which span from concurrent engineering to contract manufacturing, are essential. PLM ensures timely delivery, cost efficiency, and adaptability to regulatory and market demands. It serves as the framework for supplier engagement, both technically and commercially, and encompasses product development, procurement, skill management, and return on innovation strategies. Optimizing the CPG supply chain is vital for staying competitive and meeting consumer demands.

In this post, I discuss how concurrent engineering speeds up product development and how contract manufacturing offers flexibility and cost savings. Additionally, I explore the importance of integrating Material Requirements Planning (MRP) with demand forecasting and procurement strategies.

PLM strategies go beyond product development cycles

PLM is typically associated with product development cycles, but it encompasses much more than just product design, Bill of Materials (BOM), simulation, and data management across engineering, manufacturing, quality, and supply chains. PLM strategies often originate from innovation strategies and expand into procurement, talent management, finance, sales, and marketing. These strategies go beyond start of production, expanding into product maintenance, SKU and change management, and circular economy requirements. These strategies reflect and often translate various critical business aspects into a holistic data management framework, addressing key considerations such as:

• How will a product be developed and brought to market?
• How will it fit across the wider product portfolio and variability?
• How will external and internal parties collaborate and co-innovate, ensuring the product is certified, compliant, sustainable, affordable, and ultimately profitable?
• How will production and assembly be scaled and optimized for efficient reusability?
• How will product variants and changes be introduced, affecting the ability to meet consumer and regulatory requirements?
• What skills are required today and, in the future, to enable these processes?

PLM strategies often start with gateway deliverables, maturity assessments, and change management alignment. They combine procurement and skill requirements to determine the extent of in-house versus outsourced product development and change management. During early innovation cycles, concurrent engineering allows multiple processes to happen simultaneously, speeding up product development, fostering innovation, and driving a competitive edge by accelerating fail-fast results and reducing time-to-market for new products.

Accelerating product development through concurrent engineering

For CPG companies, accelerating product development through concurrent engineering means significantly reducing development cycles and time-to-market by involving suppliers early in the development process. This collaborative approach allows for continuous feedback loops, which are crucial for real-time or near-real-time management of PLM data. By ensuring traceability and efficient management of this data, companies can enhance design and engineering productivity, maintain high standards of quality and compliance, and swiftly implement corrective and preventive actions. This leads to a more agile and responsive development process, enabling CPG companies to quickly adapt to market demands and consumer preferences.

Moreover, while the fundamental PLM disciplines are similar across industrial and consumer goods, there are nuanced differences between process and manufacturing products that CPG companies must navigate. Innovation levels and forecasting complexities can vary significantly across industries, necessitating tailored PLM strategies that also encompass strategic asset and intellectual property management. By effectively leveraging concurrent engineering, CPG companies can foster a more innovative environment, better predict market trends, and efficiently manage resources, ultimately achieving a competitive edge in a fast-paced market.

Flexibility and cost efficiency with contract manufacturing

For CPG companies, contract manufacturing offers significant benefits by providing the flexibility to scale production up or down based on market demand and operational needs. This flexibility allows companies to respond quickly to fluctuations in consumer demand, seasonal variations, and unexpected market changes without the burden of maintaining large, fixed production capacities. By outsourcing production to specialized firms, CPG companies can leverage the expertise and advanced technologies of contract manufacturers, ensuring high-quality output while minimizing the need for substantial capital investment in manufacturing infrastructure. This is also a way to distribute risk and decompose strategic assets across multiple complementary or even directly competing supply chains.

The cost savings associated with contract manufacturing can be substantial. By reducing the need for extensive in-house production facilities, companies can lower their overhead costs, including expenses related to equipment, maintenance, and labor. Contract manufacturers often operate at higher efficiencies due to their specialized focus and economies of scale, leading to lower per-unit production costs. Additionally, outsourcing production allows CPG companies to focus on their core competencies, such as product innovation, marketing, and brand management, while benefiting from the operational efficiencies and expertise of their manufacturing partners. This strategic approach not only enhances production efficiency but also contributes to overall business agility and competitiveness in the dynamic CPG market.

Integrating PLM with MRP for demand forecasting and procurement strategies

Typically executed downstream of product development, manufacturing resource planning (MRP) plays a critical role in ensuring that materials are available for production when needed, thereby avoiding delays and bottlenecks in the manufacturing process. Furthermore, Gartner refers to “closed-loop MRP” due to inherent feedback loops between execution and planning functions. For CPG companies, MRP timely and accurate data feeds are essential for maintaining optimal inventory levels, scheduling production activities, and managing the procurement of raw materials. By accurately determining the quantity and timing of material requirements, MRP capabilities help prevent both shortages and excess inventory, ensuring a smooth and efficient production flow. This is particularly important in the CPG industry, where timely product availability is crucial to meeting consumer demands and maintaining market competitiveness.

The integration of MRP with demand forecasting and procurement strategies defined during the product development cycles significantly enhances deployment planning and inventory management. A robust PLM data management strategy is crucial here, as upstream PLM data provides accurate, real-time information that feeds into MRP systems. This integration ensures that the data driving MRP is both timely and precise, thereby improving the accuracy of change management and production planning. Demand forecasting provides valuable insights into future consumer needs, allowing companies to anticipate market trends and adjust their production schedules accordingly. When integrated with MRP, these forecasts enable more precise and proactive planning, ensuring that the right materials are available at the right time. This integration also supports better procurement strategies by aligning material purchases with predicted demand, leading to cost-effective sourcing and minimizing the risk of stockouts or overstock situations.