CPG Manufacturers Lead the Way in Reducing Supply Chain Costs

To remain competitive in the grocery, retail and consumer packaged (CPG) industry, retailers and wholesalers seek to offer more value to consumers. The most successful merchants provide quality goods at low prices by removing costs from the supply chain. Leading manufacturers have responded by implementing trading practices that benefit the retailers as well as themselves.

Manufacturers like Kraft, Coca-Cola, and Proctor & Gamble lead the industry with some of the most attractive and efficient trading programs. For the manufacturer, these programs ensure that customer profitability thresholds are met. For the retailer, these programs enable the merchant to control supply chain costs. The success of these programs requires trust that is built on transparency into each cost component of the supply chain. Inaccurate costing is generally the root cause of a failed program. Successful programs inevitably rely on activity based costing (ABC). This paper describes that process, beginning with an overview of ABC and how it works. The second section examines how a good ABC system lays the groundwork for customer profitability programs, including cost-to-serve (CTS) pricing. A final section walks through the steps required to implement a successful ABC project.

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