SOURCE: IBM

July 13, 2005 08:00 ET

Transportation Driving Up Production Costs, CPG Industry Survey Finds

WASHINGTON, DC -- (MARKET WIRE) -- July 13, 2005 -- Transportation is driving up production costs in the food, beverage and consumer products industry, according to the Grocery Manufacturers Association's (GMA) fifth benchmark survey on logistics. The survey was conducted by IBM Business Consulting Services in conjunction with GMA.

The GMA 2005 Logistics Survey found that transportation costs have increased 23 percent to an average of $1.69 per mile in the past three years. In fact, transportation now accounts for 62 percent of all logistics costs. The survey concluded higher than anticipated fuel prices were a major contributing factor to the increasing cost of transportation.

In addition to fuel prices, the GMA survey found that changes to the hours-of-service regulations for truck drivers had a domino effect. By limiting the average distance a truck driver can cover in a single day, carriers found it more difficult to retain enough drivers to meet demand and overall shipping capacity dropped. Additionally, the survey respondents reported that more retailers are relying on manufacturers to address the challenges of moving freight in today's environment.

"For CPG companies, responding to the needs of retail customers and reducing costs are constant goals," said GMA Senior Director of Industry Affairs, Karin Croft. "However, achieving these goals is more challenging than ever as transportation costs continue to escalate."

Consumer products companies are addressing increased costs, reduced shipping capacity and retailer concerns in a variety of ways, according to the survey. Companies are shifting to different modes of transportation where possible, better utilizing trailers, taking advantage of continuous move opportunities and partnering with carriers to secure year-round capacity.

"Current margin pressures are severe," said Karen Butner, associate partner, IBM Institute for Business Value. "In an effort to improve customer service and reduce costs, we see many consumer products companies reducing the fixed costs and capital requirements of supply chain operations and moving to a more variable cost structure that can be controlled and managed 'on demand.'"

For the first time, The GMA 2005 Logistics Survey also asked respondents about their compliance with information management initiatives, including RFID and data synchronization. Executives participating in the survey confirmed the following findings:

--  RFID is being fully implemented within only a small percentage of
    consumer products companies, with the majority (69 percent) investing only
    enough to comply with retailer demands.
    
--  Ten percent of respondents stated that RFID was extremely effective in
    meeting their business objectives.
    
--  Implementation of data synchronization continues to progress, with 52
    percent of survey participants reporting a moderate to high level of
    adoption.
Other issues addressed in the survey include:
--  How CPG companies are responding to increasing retailer demands for
    customized packaging and/or specialized, floor-ready displays
    
--  To what extent manufacturers believe they have been affected by
    Sarbanes-Oxley in the areas of trade promotion, freight payment, inventory
    control and customer invoice audits.
About the survey:

The GMA 2005 Logistics Survey captures significant trends and establishes operational benchmarks in several areas of supply chain logistics, including distribution and transportation practices, outsourcing, information technology, and inventory management. Thirty-two companies participated, representing a cross-section of GMA member companies in the food and beverage (86 percent) and health and beauty care sectors (14 percent). The survey has been conducted every three years since 1993.

About GMA:

The Grocery Manufacturers Association (GMA) represents the world's leading branded food, beverage and consumer products companies. Since 1908, GMA has been an advocate for its members on public policy issues and has championed initiatives to increase industrywide productivity and growth. GMA member companies employ more than 2.5 million workers in all 50 states and account for more than $680 billion in sales. The association is led by a board of member company chief executives. For more information, visit the GMA Web site at www.gmabrands.com.

About IBM Business Consulting Services:

With consultants and professional staff in more than 160 countries globally, IBM Business Consulting Services is the world's largest consulting services organization. IBM Business Consulting Services provides clients with business process and industry expertise, a deep understanding of technology solutions that address specific industry issues and the ability to design, build and run those solutions in a way that delivers bottom-line business value. For more information, visit www.ibm.com/bcs.

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