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New Roadmaps for Navigating Disruption in Supply Chain, IT

January 30, 2018

By Jim Flannery, Executive Vice President, Operations and Industry Collaboration

CPG companies enter 2018 contending with forces such as changing consumer needs, a new retail landscape that includes e-commerce, and new cost pressures. These hurdles are impacting every aspect of CPG company operations, including IT and supply chain. But along with these challenges also comes opportunity – and a chance for CPG companies to evolve alongside the rapidly changing digital landscape and harness new technologies and trends to foster growth.

Two timely new BCG reports commissioned by the Grocery Manufacturers Association (GMA) address how IT and supply chain leaders can navigate ongoing disruption pressures to help their CPG organizations emerge in stronger positions. The reports are based on industry surveys and related research, and can provide guidance for GMA member companies.

Looking first at the IT side, it’s evident that chief information officers face daunting balancing acts today. They are being asked to drive digital innovation to support their companies. However, instead of being provided with more resources for this endeavor, CIOs face increased budget constraints. The BCG/GMA benchmarking survey, called Accelerating Digital Innovation in CPG,” found that CPG companies have succeeded in reducing IT costs, but haven’t made nearly as much headway in prioritizing IT innovation.

BCG characterized CPG companies’ levels of IT innovation along a range that moves from “deliberators” at the low end, to “leaders” at the high end. Companies can use BCG’s definitions to help benchmark their own progress. Leaders show the highest IT spending as a percentage of revenue, pay more in compensation, work on more key digital transformation priorities, make better use of analytics, and are better at accelerating innovation internally.

However, what defines leadership is typically a moving target, as evidenced by the technologies companies have embraced over time. Not long ago companies were considered leading edge if they made some use of software as a service (SaaS) platforms and the cloud. Today, the report stated, these practices are increasingly the norm. Requiring more focus from CPGs today is the practice of agile development, the report added. Agile development has come to be associated with technology leaders such as Amazon, Google and Netflix. This highly collaborative form of development includes close working relationships between product owners and software teams to enable strategy shifts in real time.

The report found that the majority of CPG companies use agile development for less than one third of projects, and only half of companies plan to increase its use.  As a result, the report urged more focus on agile development with this pointed warning: “In five years, a CPG company that isn’t using agile for most of its development projects will likely find it difficult to be competitive in terms of digital technology.”

Turning to the supply chain side, a new BCG/GMA benchmarking study found some good news in the form of improved service levels — in areas such as case fill rates and average on-time delivery.

However, in exploring the biggest supply chain disruptors, the report, called “How CPG Supply Chains are Preparing for Seismic Change,” found that retail “channel proliferation is the greatest impediment to on-time delivery performance.” This is particularly true when CPGs serve the emerging crop of smaller format retailers, especially online retailers, versus their traditional larger-format customer base that includes grocery, club and mass. This is because CPGs have longer and more collaborative working relationships in place with the bigger format retailers. However, those mainstream retail customers are under more pressure, and are ramping up on-time delivery requirements with new financial penalties for falling short.

The report urged specific actions for CPG company supply chain operations to satisfy both increased customer needs and their own business requirements. These include seeking new efficiencies; bolstering their ability to hire and retain employees with analytical skills; gearing up for e-commerce; making better use of big data and digital tools; and improving collaborative relationships with customers, especially when it comes to alternative and e-commerce channels.

While IT and supply chain are different business functions, they face many of the same CPG industry challenges and can each benefit from taking new approaches to technology and other strategies. These reports are useful guides for companies to build their game plans in 2018 and beyond. The reports can be downloaded at these links: Accelerating Digital Innovation in CPG and How CPG Supply Chains are Preparing for Seismic Change.

Filed under: Industry Issues

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