Drive CPG Growth by Building a Partner Ecosystem
By Joseph Esteves
CPG manufacturers have traditionally seen their primary role as leading the development and production stages of the supply chain with their “customers" being wholesalers, retailers and distributors. While in many cases the manufacturer provides the retailer or distributor with marketing collateral or general guidance in how to position their products to consumers, it is ultimately those further along the value chain and closer to the consumer who have always been in a better position to understand customer trends.
As consumers move towards the digital shelf and newer and nimbler brands disrupt high-margin categories, CPG companies have been contemplating shifting to a direct-to-consumer model. However, this model varies (as do results), and big CPG companies are leaving money on the table and missing out on key growth opportunities. To understand how CPG got to this decision point, we must understand the inherent disconnect between them and the end consumer. This is simply because they have failed to understand the entire end-to-end ecosystem and to approach growth from a "win-win" perspective in partnership with their retailers, which seeks to better understand and serve the consumer.
Traditional growth strategies involve common methods – more marketing, expanding into new markets and cutting costs. These strategies may yield growth medium term, but growth based on those factors alone will not be sustainable.
Three things are essential to long term, sustainable CPG growth:
1. End-to-end collaboration 2. Deeper insights into consumer trends 3. A Total Value Optimization approach that benefits all parties in the supply chain equally.
What are successful CPG companies doing differently? CPG companies that are achieving the greatest levels of success aren't relying on those older, more common, strategies. They are looking at the entire supply chain rather than merely focusing on the link between themselves and the retailers and distributors. This leads to a deeper understanding of consumers (their customers' customers) and greater reliance on data and analytics to address consumers' preferences more accurately.
Understanding that middle layer of retailers and distributors may be important, but it is even more important to understand consumers. And to understand consumers, a CPG company must recognize the rapidly changing demands of the millennial generation. This generation is far more willing to try new things. Consequently, CPG companies may have more success in expanding their SKUs and adding variations on old ones than they did with previous generations. Brands that move quickly and are willing to experiment and understand the changing consumer patterns of this generation will be the ones to achieve growth.
Collaboration is Key
End-to-end collaboration together with detailed analytics meant to gain a deeper understanding of the consumer will create more value and drive bottom-line benefits – not only for the CPG company, but also for the retailers and distributors. Maine Pointe has developed a data-driven approach to support the CPG industry by providing "3D insights." The three dimensions of this concept assist CPG executives in driving the triple effect: cost, cash and growth. Some examples of Maine Pointe’s custom "3D insights" are analytical models, tools, and processes that generate city and store-level insights. These insights can be tied with personalized shopper data to create informed decisions across the commercial organization in real or near real time versus the current standard of refreshing consumer or shopper insights each month. This model also benefits the consumer by providing access to a wider variety of products that meet their needs.
We have seen first-hand the value 3D insights can offer. A case in point is our recent work with a client with a data team of 38 people. The client saw that actionable insights led to the delivery of $48 million in savings, while freeing up $300 million in cash, in just four weeks.
Understanding the consumer also means deploying an omnichannel strategy and stepping out of your comfort zone of working with brick-and-mortar retailers and distributors. Today's consumers are increasingly looking to multiple sources before making even basic purchases of everyday items. They are sharing information as to where the best prices are online and via social media. As such, a new omnichannel strategy has to look at selling on large e-commerce sites like Amazon, as well as through traditional retail channels.
Total Value Optimization
End-to-end supply chain collaboration, a key component of Total Value Optimization, has increased in importance and, as noted in a white paper published by the University of Tennessee's Global Supply Chain Institute titled "End-to-end supply chain collaboration: Best practices," most supply chains are inadequate at meeting the rising expectations of both shareholders and consumers.
In a Total Value Optimization approach, a win-win ecosystem forges a closer relationship between the CPG supplier and its customer base. This tighter customer relationship can be driven through several technological and "big picture" methods including leveraging better technology for inventory tracking and visibility and more direct integration with customers' core systems. True success in CPG growth doesn't happen with technology alone; it requires closer collaboration with a shared goal of meaningful growth for all parties in the supply chain.
The GSCI paper also notes that "cost savings fatigue" has become common as supply chain managers seek out constant cost savings in an attempt to squeeze out additional profits even though the opportunities to do so are limited. Rather than simply focusing on being the low-cost leader, CPG suppliers embracing Total Value Optimization will replace the singular value creation approach with one designed to create value across the board and in multiple dimensions for the company itself, for its intermediate retail and distribution partners and for the consumer, driven by deeper insights derived from data analytics.
Joseph Esteves is Vice President, CPG at Maine Pointe, a global supply chain and operations consulting firm. For more information: www.maineponte.com.