Supply chain planning in the Fast-Moving Consumer Goods (FMCG) industry is unlike any other. It operates in an environment where demand volatility is the norm, product life cycles are short, margins are thin, and volumes are high. Retailers – and, of course, consumers – expect a near-perfect fulfillment rate. Unlike industries where lead times and planning cycles can stretch into months, FMCG supply chain planners must make split-second decisions to prevent stockouts, manage promotions, and balance the constant trade-off between overstock and lost sales.
But planning in FMCG is not just about reacting fast, it’s about building an anticipatory system that integrates market intelligence, advanced analytics, and operational agility. A well-structured FMCG supply chain planning process can reduce costs, minimize obsolescence, and maximize service levels, but achieving this balance is far from easy. Let’s explore how FMCG supply chain planning works in practice, dissecting its core challenges and the strategies companies use to stay ahead.
Demand Planning in FMCG
In most industries, demand forecasting heavily relies on historical data. While this is also true in FMCG, it’s often not sufficient. The main reason lies in the chaotic nature of demand patterns in FMCG. Historical data itself is frequently unreliable: lost sales are difficult to quantify, and this makes it challenging to capture true demand. As a result, planners often base their forecasts on sales or shipment data alone, which can be inaccurate.
Moreover, factors like promotions, cannibalization, and substitutions distort the real demand signal, further complicating the forecasting process. To make matters worse, consumer preferences constantly shift due to social media trends, competitor activities, and even weather conditions. These dynamic factors make both current and future demand extremely difficult to predict.
For example, a company selling bottled water might see demand surge by 300% during a heatwave, while a cereal brand may experience a sales drop if a competitor runs a “buy one, get one free” promotion in the same supermarket aisle. These demand fluctuations require planners to go beyond statistical models and integrate real-time data and external factors or building blocks.
How is Demand Planning Done in FMCG?
- Shorter Forecasting Horizons: Unlike durable goods, which allow forecasting over months or years, FMCG companies work on weekly or even daily forecasts. Many businesses use rolling forecasts, where they constantly adjust predictions based on fresh market insights.
- Leveraging External Data: Traditional demand planning relied only on past sales data, but modern FMCG planners use demand sensing by incorporating point-of-sale (POS) data, weather forecasts, social media trends, and competitor intelligence to adjust demand projections dynamically.
- Managing Promotions and Cannibalization: Promotions are a double-edged sword. They drive sales but also distort demand history, making accurate forecasting more difficult. If a shampoo brand runs a 50%-off promotion, demand might spike, but what happens afterward? Will customers stockpile and reduce purchases in the following months? Will the discount cannibalize sales of other sizes or variants of the same product?
The best companies use promotional uplift models, integrating past promotion responses to predict their impact. They also use AI-driven elasticity models to understand how different price changes affect volume.
Supply Planning in FMCG
Once demand is forecasted, the next challenge is ensuring the supply chain can meet it without creating excess inventory or bottlenecks. Supply planning in FMCG is extremely complex due to short shelf life, high SKU (stock keeping unit) variety, new product introductions, and seasonal demand peaks.
Key Supply Planning Challenges in FMCG
- Short Shelf Life and Expiry Management: Many FMCG products, like dairy, fresh produce, and even snacks, come with an expiration date. This means you can’t simply stockpile inventory in the way industrial manufacturers do. The supply plan must ensure stock arrives just in time to maximize shelf life while minimizing waste.
- High SKU Complexity and Portfolio Rationalization: FMCG companies often manage hundreds or even thousands of SKUs, varying in pack sizes, flavors, and brands. This diversity creates significant challenges in production scheduling, leading to inefficiencies and increased operational complexity. To address this, many companies implement SKU rationalization, discontinuing low-profit, low-volume variants that add unnecessary complexity to manufacturing and distribution.
At the same time, continuous product innovation is essential in FMCG to remain competitive and align with evolving market trends. When launching new products, companies must establish a detailed route-to-market plan, ensuring that all supply chain stakeholders are aligned. This plan must accurately define inventory requirements for the launch phase, balancing availability with the risk of excess stock. However, forecasting for new products is particularly difficult due to the absence of historical sales data.
To mitigate this uncertainty, supply chain teams generally adopt a conservative approach when determining initial purchase and production quantities. This cautious strategy helps minimize the risk of obsolescence while allowing companies to test market demand before scaling up production.
- Multi-Echelon Inventory Optimization (MEIO): Given the multiple distribution points (factories, central warehouses, regional DCs (distribution centers), stores), inventory planning in FMCG follows multi-echelon principles. This means planners don’t just optimize stock at one level but across the entire network to prevent shortages at local levels while avoiding bloated inventories upstream.
Inventory Management in FMCG
Inventory planning in FMCG is a balancing act: too much stock leads to obsolescence and wastage, too little stock leads to lost sales and poor retailer relationships.
How FMCG Companies Optimize Inventory:
- Any type of segmentation (such as ABC/XYZ) allows companies to categorize inventory strategically and focus on what matters most:
- High-volume, predictable items (e.g., staple food) can follow EOQ (economic order quantity) models with safety stock.
- Low-volume, unpredictable items (e.g., premium organic chocolate) can use demand-driven inventory policies with flexible reorder points.
- Consignment Stocking and Vendor-Managed Inventory (VMI): FMCG suppliers often take on the burden of managing retailer inventory to prevent stockouts. In vendor-managed inventory, suppliers monitor retailers’ stock levels in real-time and automatically replenish as needed, reducing stock outs while keeping working capital low.
- Dynamic Safety Stock Calculation: Instead of using static safety stocks, leading FMCG companies use real-time variability tracking to adjust buffers based on:
- Demand fluctuations
- Supplier reliability metrics
- Other external disruptions
Distribution Planning and Last Mile in FMCG
Unlike industries where customers place orders in advance, FMCG distribution is largely push-based, meaning suppliers must anticipate demand and allocate inventory before sales occur. Retailers expect 95%+ service levels, meaning even a single late or incomplete delivery can cause costly penalties.
How Distribution Planning is Handled in FMCG
- Dynamic Allocation Models: Instead of pre-allocating stock weeks in advance, companies use real-time demand signals to adjust allocations. If an unexpected spike in demand occurs in one region, stock can be diverted dynamically.
- Direct Store Delivery (DSD) vs. Centralized Distribution:
- DSD is used for perishable and impulse-driven products (e.g., snacks, soft drinks) where freshness and shelf availability are critical.
- Centralized DC distribution is preferred for high-volume, non-perishable items where economies of scale matter.
- Route Optimization for Fast Fulfillment: FMCG delivery must be fast, cost-effective, and predictable. Companies use vehicle routing optimization (like the VRP (vehicle routing problem) models) that factor in traffic, order priorities, and fuel costs to maximize fleet efficiency.
Final Thoughts
The FMCG sector is constantly evolving, and so are its supply chain challenges. AI-powered forecasting, blockchain traceability, and real-time demand sensing are shaping the future of planning in this space. But at its core, the principles remain the same: plan fast, react even faster, and build agility into every process.
By mastering these difficulties, FMCG companies can reduce waste, lower costs, and deliver better service levels, a must in an industry where every second counts.
Interested in learning more about supply chain planning across different industries? Stay tuned for our next blog post, where we’ll explore the unique challenges and best practices in another sector.