Digital Supply Chains Carry Brands to the Future

https://www.investopedia.com/terms/s/supplychain.asp

APICS Magazine, 2019
By Mohammed (Mo) Hajibashi

The pace of change in the consumer packaged goods (CPG) industry is relentless. Even those consumer brands that have long defined the industry are seeing a tidal wave of smaller players assume sizeable market shares. Meanwhile, consumers increasingly demand speed and convenience, which places pressure on these companies to design innovative products and customized consumer experiences with fast sales and distribution in a complex, multi-channel environment.

For today’s CPG companies, operational efficiency through scale no longer provides the same supply chain advantage it once did. This makes the move to becoming a more modern and faster CPG manufacturer essential for capturing untapped market growth. Digital supply chains have the potential to be one of the greatest enabling functions — so why, then, do CPG executives overlook opportunities to invest in digitization?

Historically, technology in CPGs was largely viewed as a back-office asset. But today, new and emerging tools can completely revolutionize business functions and operating models, eliminating poor response times, removing conflicting priorities and overcoming inefficient fulfillment processes. Yet, according to the Accenture report “Is your supply chain helping you grow?”, almost half of the CPG executives surveyed identified the lack of a business case to integrate new information technology (IT) in the supply chain as a critical challenge. This is counterintuitive, as evidence suggests that a digitized, modern supply chain enables businesses to move quickly and better adapt to market and consumer behavior patterns — both of which enable advanced operational efficiencies.

Therefore, to truly move the dial, the onus for change must fall on the operational decision-makers to create a solid business case for upgrading outdated supply chains with new, impactful capabilities that leverage the latest technologies. To persuade members of the C-suite to invest in their supply chains, supply chain management professionals first must address common challenges faced by many in their position.

Misplaced measurements

Typically, CPG leaders evaluate the success of their supply chains on only their ability to reduce expenditures. But cost-reduction is only one key element; the enablement of growth and differentiation are just as essential in measuring supply chain effectiveness. While these two elements are not as readily quantifiable, the shift can be enormous and can advance the entire CPG organization. Unfortunately, most CPG companies are missing opportunities to use the supply chain to support this kind of profitable development.

According to the Accenture research, investing in new capabilities required to enhance and improve the supply chain often are considered IT-related decisions, rather than part of the broader business strategy. The survey found that chief technology officers (CTOs) and chief information officers (CIOs) are the top business stakeholders for technology investment decisions in the CPG supply chain. Surprisingly, only 16 percent of companies said the chief executive officer (CEO) was involved with the decisions surrounding where these investments would be made, and just 23 percent identified the chief financial officer (CFO) as a decision-maker.

While not minimizing the importance of CTOs and CIOs, this insight reveals that IT is still not seen as a true strategic business enabler. Successful CPG manufacturers of the future will be those that work across roles and functions to obtain expert guidance and knowledge on the right technologies to enable leading-edge capabilities required to power growth.

Occasionally, the inability to create a business case for the digitization of the supply chain comes down to the fact that the organization does not have the proper resources in place to enable effective operations that are driven by the right capability investments. For instance, survey respondents reported a lack of IT skills and compatibility issues with legacy systems as the primary issues holding them back.

How can CPG companies begin to address these problems? There is no one-size-fits-all approach because the strategy must align with the company’s vision, market position and unique challenges. However, there are three ways CPG manufacturers can begin the shift:

1. Modify the mindset. Change must come from the top, and it requires a new outlook in which the supply chain is a true growth driver. The Accenture research suggests that there is still considerable work to be done, with 69 percent of executives reporting that they view supply chain management activities as support functions. That said, 61 percent do believe supply chain plays a key role in cost efficiency.

The good news is that transformation is coming. Nearly half of all CPG executives surveyed stated that they believe the supply chain will be a competitive differentiator by 2020. Similarly, 55 percent report that the supply chain will be a growth enabler, and 67 percent see the potential for the supply chain to play a role in improving customer service.

2. Focus on the supply chain becoming an enabler. As the executive mindset shifts, it becomes increasingly important to match supply chain decisions with business strategy decisions. For technology to significantly redefine the supply chain, CPG companies must make the supply chain a key part of their brand experience strategy, with support from the entire C-suite. To achieve this, CPG manufacturers need to learn from industry leaders — and push for the decision to invest in new technology for the supply chain to come from CEOs and CFOs, rather than just the CTOs and CIOs.

Take Coca-Cola, for example. To give its customers a more personalized experience, the manufacturer completely digitized its supply chain in the development of Coca-Cola Freestyle machines. Freestyle presents more than 100 different beverage options, with all of the company’s drink products available to the consumer from a single source at the point of sale. There is even a Coca-Cola Freestyle app, which enables users to create custom mixes and earn rewards. The machines are managed and replenished with raw material in an entirely automated manner. To achieve this, Coca-Cola aligned IT investments in the supply chain to the overarching business strategy and determined where each would have the greatest impact.

3. Highlight success stories. In some cases, CPG businesses spread their supply chain investments too thin. To avoid this, industry professionals must place a greater emphasis on focused investments that drive the most opportunity based on the business strategy. One CPG multinational company is getting this right: PepsiCo invested heavily in the technology behind its direct store delivery distribution model, thus improving how the company plans its business and improves customer relations. Similarly, France’s Danone partnered with JD.com to build a new warehouse that employs big data analytics to ensure precise replenishments and faster inventory turnover.

Look to the future

Investments in big data analytics and smart computing can have a significant impact on planning, fulfillment, sourcing and procurement functions, while robotics and virtual reality have the potential to transform warehouse management operations, manufacturing, and product development and design. Digitized supply chains powered by innovative technology will make CPG manufacturers smarter, more adaptable and more readily able to sense and respond to consumer and market demand patterns. By investing in their supply chains, CPG companies invest in the future of the entire business.