On paper, it might sound like a great idea to serve as a one-stop-shop for all your business operations, but savvy CPG companies know better. In a crowded field with tight margins, CPG outsourcing might just be the secret ingredient for sustainable growth.
What is CPG outsourcing?
CPG outsourcing is a common practice among consumer packaged goods companies that consists of brands delegating specific business operations to third-party vendors, agencies or other professionals rather than handling all of their workflows in-house. We frequently see CPG outsourcing in areas like manufacturing and distribution, but a growing number of businesses are also turning to external service providers for support in marketing, compliance, data analysis and more.
Benefits of outsourcing logistics for CPG brands
Logistics is one of the most commonly outsourced functions in the CPG space because it usually requires resources, labor and real estate that may not be readily available to your average CPG brand. Warehousing, transportation, fulfillment and other logistics tasks are like a big puzzle that can best be solved by experienced, well-equipped industry professionals.
By outsourcing logistics operations to experienced industry partners, CPG brands can:
- Speed up delivery times
- Enhance delivery reliability
- Cut overhead costs commonly tied to facilities and labor
- Scale up CPG distribution without the need for additional infrastructure
- Adapt more readily to demand spikes and industry shifts
In addition to streamlining delivery and fulfillment tasks, outsourcing logistics can help brands focused on inventory management in CPG enhance supply chain efficiency across the board while delivering enhancing visibility and flexibility to their consumers.
Examples of outsourced innovation for CPG
The need for innovation isn’t limited to product development or CPG marketing initiatives. In an incredibly competitive space, there is a growing need for innovation across every link in the supply chain. Subsequently, many brands have found creative ways of streamlining and enhancing their outsourcing procedures.
Some examples of innovation in the CPG outsourcing space include:
- Partnering with contract manufacturers to pilot new SKUs at a reduced cost
- Using independent culinary or formulation labs to test flavor concepts
- Outsourcing regulatory review procedures to ensure maximum compliance
- Working with data analytics teams to identify growth opportunities prior to investment and development
These kinds of approaches allow brands to take advantage of new and emerging tools and resources without compromising their bottom lines. Additionally, identifying and leveraging strategic opportunities for innovative outsourcing can help brands stay on-mission while staying one step ahead of evolving CPG trends and regulatory guidelines.
As technology continues to evolve alongside a rapidly growing industry, CPG brands have numerous opportunities to outsource key workflows to scale sustainably. Here are a few examples of opportunities for CPG outsourcing:
Contract manufacturing and co-packing
Contract manufacturing and co-packing are foundational outsourcing services in CPG spaces. Contract manufacturers can produce, package and – sometimes – distribute products at scale, without requiring brands to expand or invest in their own production facilities. Outsourcing these needs can help alleviate CPG manufacturing strain and help brands develop and launch new products with greater ease and flexibility.
Supply chain, logistics, and fulfillment
As we discussed above, logistics and fulfillment are some of the most attractive opportunities for CPG outsourcing. Distribution, warehousing and fulfillment are all time and capital-intensive services, and outsourcing these efforts can significantly improve efficiency across the CPG supply chain. Sometimes, third-party logistics providers can even help brands expand their geographic reach into regions that would have otherwise been inaccessible to them.
Product development and regulatory support
Outsourcing regulatory and compliance can help brands navigate labeling requirements, ingredient approvals and international expansion with greater confidence and efficiency. By pairing third-party regulatory oversight with ongoing product development efforts, brands can help avoid delays in launches and optimize workflows across the board.
Marketing, brand and e-commerce operations
Marketing is another common outsourcing area for CPG brands, particularly for companies who find themselves managing multiple channels or diverse portfolios. Marketing agencies and industry specialists can provide much-needed expertise and support to help CPG marketing teams appeal more reliably to their target in-person and CPG ecommerce shoppers. These efforts play a direct role in supporting CPG sales by improving visibility, conversion and shopper engagement across channels.
Data analytics and consumer insights
Data is one of the most valuable assets to modern brands looking to stay competitive in an evolving industry. Thanks to ongoing advancements in AI and CPG data analytics tools, many companies have put their faith in the professionals and platforms that can help them make more informed decisions about everything from product development to CPG M&A initiatives.
Cost, ROI, and Scalability Considerations
From a financial perspective, outsourcing can be a double-edged sword because it shifts fixed costs into variable ones. While this variability can be useful in providing much-needed flexibility for expanding brands, it can also have a direct impact on CPG finance decisions and CPG revenue generation.
By making strategic CPG brand management decisions about how, when and why to outsource certain operations, advancing brands can:
- Reducing upfront capital investments
- Accelerate product development and distribution timelines
- Scale services up or down as needed in response to market shifts
- Invest enthusiastically in CPG growth initiatives with less long-term staffing risk
These are just a few examples of how brands can leverage outsourcing efforts to boost their ROI and mitigate risks. With these potential benefits in mind, it’s particularly important for CPG brands and CPG finance teams to look for outsourcing partners who offer the right blend of flexibility and consistency.
Risks and Challenges of CPG Outsourcing
As we briefly touched on above, outsourcing isn’t without risk. Brands weighing their outsourcing options should carefully consider some of the challenges that may arise as a byproduct of outsourcing. Some common challenges include:
- Reduced operational control: Brands must be willing to sacrifice some of their control and oversight capabilities in exchange for third-party support.
- Vendor misalignment: Sometimes, brands find that their outsourcing partners are not quite up to the task of supporting their goals and mission. Misunderstandings, quality disparities and other kinds of brand-vendor misalignment can directly impact the public’s perception of a brand and lead to reduced customer satisfaction if they go unaddressed.
- Communication challenges: One of the advantages of conducting the majority of your operations in-house is the relative accessibility of your teams and departments. When you outsource operations, you may experience communication delays and other hindrances.
- Priority discrepancies: Third-party vendors often provide services to numerous clients simultaneously. As a result, certain tasks and operations may be treated as lower-priority by outsourced teams than they would be by in-house employees.
Many of these challenges can be addressed with the right combination of effective communication, ongoing oversight and realistic expectations. At the end of the day, you’ll know you’ve found the right industry partners when your outsourcing initiatives support – not slow – your growth.
How CPG brands use Tastewise for outsourcing decisions
Data is vital for CPG brands looking to make well-informed decisions about outsourcing. Tastewise offers a consumer intelligence platform that delivers the real-time data brands need to identify strategic opportunities for outsourcing and growth.
Rather than outsourcing based on assumptions or budgetary constraints alone, Tastewise provides brands with the comprehensive CPG insights they need to make decisions that actually fill in the gaps and cater to the needs of end consumers. Tastewise data can help brands develop, distribute and market their products more effectively and can provide critical data-backed insight into the outsourcing opportunities most likely to support sustainable growth.
Final thoughts
CPG outsourcing is hardly a luxury in today’s competitive market. Outsourcing now serves as a cornerstone practice for CPG brands looking to scale and sustain their growth without compromising their margins.
Given the potential benefits of strategic outsourcing, it’s vital for CPG brands to invest in the data solutions they need to make the most educated decisions possible about potential partnerships. With the right combination of accurate consumer data, strong internal strategy and flexible ingenuity, brands can make outsourcing decisions that maximize returns and mitigate risk across multiple channels.
