It’s an interesting time for companies in the snack food industry. Commodity prices are volatile, competition for shelf space is high and regulations, including lawsuits, are directly impacting profitability and growth potential. Winning contracts with large customers is coupled with demanding service levels. It is a steep price to achieve product innovation and expand geographically. Plus, snack food brands face growing competition from private label offerings, which offer comparable value at a lower price.
Despite these circumstances, snack food companies have adapted by making operations more efficient. This is causing industry experts to project moderate growth over the next few years. Utilizing third-party logistics (3PL) providers with significant industry experience helps snack food companies drive efficiency, reduce costs and enable growth – all critical aspects of staying ahead of the competition.
When raising prices is not an option, snack food companies must seek other ways to offset rising costs in order to stay competitive. Traditional strategies have included building multiple manufacturing plants throughout the country to reduce shipping costs, focusing on snacks with higher margins to boost revenue and hedging against rising ingredient prices. Another strategy that may not be as obvious is taking a closer look at logistics operations. With the increase in the price of fuel, transportation spend for snack manufacturers can be upwards of five percent of sales. If snack food manufacturers can reduce logistics expenses, they can save 10 to 25 percent on transportation costs. For the majority of large manufacturers, this represents hundreds of thousands, if not millions, in savings.
Usually, when a 3PL partners with a snack food company, their first order of business is to identify ways to reduce freight costs both inbound and outbound. The snack food industry produces high-volume and low-value products. This makes it very important to keep transportation costs as a percentage of sales as low as possible.
Additionally, the best 3PLs collaborate with snack food manufacturers to define and implement solid distribution strategies by analyzing and understanding their historical shipping data. Business intelligence is vital in order to continuously improve and track progress. For example, being able to understand the cost to serve by customer, region, mode and product can help companies effectively price their products to be competitive while still maintaining healthy margins. Understanding this data could also uncover opportunities to relocate a distribution center or warehouse. A 3PL may be the most economical way to obtain these reports.
Aside from reducing costs and providing sophisticated reporting, a 3PL can help foster expansion and growth for snack food companies. New contracts and products make it imperative for leading snack food companies to create agile supply chains. This allows them to meet shifting consumer demands and reach new buyers. How would a 3PL assist in these circumstances? Many choose to partner with a 3PL to gain economies that could not be obtained on their own, therefore leveling the playing field with larger competitors.
Securing warehouses, logistics staff, installing and maintaining information systems are all large, up-front investments. A 3PL can quickly bring knowledge and technology at a fraction of the cost. Snack food companies can then focus their energy on core competencies such as producing desirable, high margin products while the 3PL keeps the shipping function in tune with trends in the logistics world.
Additionally, for many snack food companies, expanding to sell to big box retailers is a critical channel of growth but shipping into their facilities while meeting their demands is not a simple task. A 3PL that understands the importance of these situations focuses on improving vendor scorecards by ensuring carrier performance. Having extensive knowledge of carrier service levels is an example of how a 3PL’s expertise can be valuable in a snack food company’s quest of serving big box retail.
Experimenting with different snack products to meet regional appeal is another aspect of expansion. Since the cost of product innovation is high, it is especially helpful to partner with a logistics provider who is able to not only reduce costs, but quickly change distribution strategies. Without the necessary speed to market, snack food companies might miss the opportunity to introduce and maximize exposure of new snacks before the trend passes.
Being proactive and taking a closer look at the supply chain can truly be game-changing for companies, especially when dealing with consumer products such as snacks. The snack landscape continues to change due to changing consumer tastes and manufacturers, distributors and retail partners rely more and more on effective, flexible distribution strategies to remain profitable. The right logistics partner can help with the expansion of new products into new markets. In today’s world, it’s less about a “flavor of the month” strategy, it’s all about reach.
As a Top 10 3PL that provides end-to-end supply chain solutions to many companies across the snack food industry, Transportation Insight would welcome the opportunity to speak with you to see if our supporting services would help you meet your goals. If you’re attending SNAXPO 2014, come see us at Booth #639 to learn more, or email us.