Many Fast Moving Consumer Goods companies (FCMGs) operating in developing economies (often associated with infrastructural challenges and supply chain inefficiencies) are usually forced to consider the decision to either integrate backwards - in a bid to assure better security and quality in supply of raw materials - or forwards in order to manage distributions operations more effectively. However, doing so comes at a cost especially where such companies may end up committing resources to activities where they do not necessarily have distinctive competences. This is why it is becoming increasingly important for FMCGs to go beyond adopting strategies that only promote internal operational efficiencies to seek ways to facilitate improved external operations for their trade partners.
A good number of FMCGs have embarked on transformational initiatives, which have resulted in a rationalisation of suppliers and in some cases streamlining of route to market trade partners (distributors and wholesalers especially). Such initiatives usually include the introduction of new trading policies with the aim of promoting higher operational standards from the company’s trade partners. However, a major challenge is that many of these companies still maintain a largely transactional relationship with their partners largely by focusing only on setting targets and penalising non-performers. In the process they lose the benefits that accrue from a partnership that is strategic to both interests. There are instances where a key distributor in Company A is also a key distributor for a major competitor Company B. In many cases, such distributors do not owe loyalty to either of these companies but are mostly driven by the profit motive. However, a strategic partnership initiated by either company A or B with the distributor, could see more value being derived from this relationship.
One of the primary ways by which FMCGs can improve the quality of their trade relations is to improve the level of engagement with key players along their value chain. This could help to form a platform to jointly identify and address challenges that impact effective operations of these players. Such challenges, which may include inadequacy of human capital, lack of infrastructure (e.g. transport network, warehouse capacity), unfavourable regulatory policies, etc. The FMCG in this case might be able to enlist the cooperation of relevant stakeholders (regulators, financial institutions, etc.) to alleviate some of the constraints by providing support for training and staff development, facilitating better credit terms for trade partners similar to what the company enjoys, etc. An additional benefit is that companies that adopt these measures also improve their social capital as they are seen as being more socially responsible.
Working with the BIF non contracted support initiative, our team was able to support a leading alcoholic beverage company in Nigeria to review its sourcing strategy and identify opportunities for supplying the key players in the value chain which primarily include small holding farmers and the millers responsible for processing the grains raw materials. A key lesson from the experience is that companies need to develop a more sustainable strategy for engaging trade partners because this promotes timely feedback needed to retain or develop competitive advantage and that even the very poor within the value chain may be crucial to achievement of such strategies. A clear baseline recoding where the company is ab initio and a clear vision of where it wants to be along with closer alignment between the corporate responsibility units and operational units (responsible for managing trade partners) would also help to track the social impact and benefits of the company’s trade relations.
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