In the consumer packaged goods (CPG) industry, SG&A (Selling, General, and Administrative) costs have long been a go-to target for improving margins. But today’s market is anything but typical. Volatile demand, shifting consumer preferences, and rising supply chain complexities make traditional cost-cutting strategies riskier. While SG&A reductions—especially headcount cuts—can offer short-term savings, they can also weaken the supply chain’s ability to adapt and compete. Leading CPG companies are instead taking a smarter approach: reducing costs while maintaining agility.
Why cutting costs isn’t as simple as it was
For decades, CPG companies enjoyed steady growth and reliable margins. The formula was tried and tested: build strong brands, expand into growing markets, and manage costs carefully to generate more resources for brand-building. But this stability began to fade over the past decade. With slower population growth, grocery chain consolidation, and consumers' attention splintering, top-line growth became harder to achieve.
In the 2010s, CPG companies were grappling with a market that wasn’t growing like it used to. By the time the pandemic hit and inflation took its toll, margins dropped for the first time in decades, and volume contractions became the norm. In fact, in 2023, American consumers spent 10% more on groceries, but purchased 4% fewer items. As a result, many CPG leaders have been forced to focus heavily on cost reduction just to protect margins.
However, cutting costs too deeply can put supply chain efficiency and customer service at risk, leaving you vulnerable to shifting consumer demands or supply chain disruptions.
For CPG leaders, success now depends on supply chain cost optimization, reducing SG&A without sacrificing the flexibility to pivot, innovate, and serve customers in an ever-changing landscape.
Smarter cost reduction strategies for supply chain leaders
So how can CPG leaders reduce SG&A and other costs without sacrificing supply chain efficiency? The answer lies in technology, smarter planning, and automation. Here are a few key approaches that are helping CPG companies stay agile and competitive today:
Leverage automation for smarter decision making
While automation helps optimize costs, leading companies are using it to enhance decision-making rather than simply reduce headcount. AI-powered tools improve demand sensing, optimize inventory, and manage exceptions—allowing organizations to do more with the same or fewer resources. By using AI-driven demand sensing, CPG leaders can adjust forecasts based on real-time shifts in consumer behavior. Predictive inventory optimization also helps prevent costly overstocking or stockouts. These AI capabilities reduce administrative burdens while keeping the supply chain responsive and efficient.
Plan ahead to avoid costly surprises
Reactive decision-making often results in unexpected costs like expedited shipping or excess inventory—costs that are avoidable with better supply chain planning. Scenario modeling and AI-powered logistics optimization can help CPG leaders anticipate disruptions and create contingency plans. This reduces reliance on expensive, last-minute fixes, keeping costs predictable and under control.
Centralize operations for greater efficiency
Fragmented operations create inefficiencies that inflate expenses. Siloed systems, disconnected teams, and redundant processes slow decision-making and add unnecessary complexity. By centralizing operations and standardizing processes, companies can eliminate waste and improve efficiency. Transitioning to a cloud-based supply chain orchestration system reduces IT costs while enhancing scalability and visibility. This enables faster, more informed decisions that align with broader business goals and drive CPG supply chain efficiency.
Striking the right balance: cost reduction without sacrificing agility
At the end of the day, the key to cost reduction without compromising agility is finding the right balance. Streamlining operations where possible is essential, but so is investing in the technology that keeps you responsive to market fluctuations. Cutting too little means you're still bleeding cash, but cutting too much risks losing the flexibility and responsiveness required in today’s volatile market.
The most successful CPG companies will be those that reduce costs strategically while staying agile enough to adapt, innovate, and meet the ever-evolving demands of consumers. Those who master this balance will be more resilient, competitive, and better equipped to handle whatever the future holds.
Want to learn more?
Check out our latest resources and stay tuned for our upcoming CPG supply chain eBook, where we dive deeper into how the best brands are balancing cost reduction with agility, and staying ahead of the competition in these challenging times.
