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CPG companies today face challenges, many of which are only at an evolving stage and will become much much more complex as we travel deeper into Digital era. To understand why CPG companies need to evolve into Tech companies, we need to understand those challenges first.
The rise and rise of eCommerce (& Omnichannel)
As retailers gravitate towards Omnichannel, CPG companies need to ponder- is fulfilling demand through retailers is a constraint ? Afterall, they do have to invest in logistics capabilities to get their products to a distributor or retailer warehouse. A disruption like this pandemic has clearly illustrated that retaile stores as a channel are can wreck havoc. Depending on what you manufacture and irrespective of whether you fulfill through your own stores or through other retailers, you have experienced one of two things:
(1) A complete “shutdown” of demand
(2) An extreme peak in demand for some items, more than usual for many and a significant drop in demand for many
Both of these scenarios, in the new normal, have illustrated, that in the long term, physical retail locations are not reliable. Even if you don’t own any physical retail presence and do have an online presence, it is time to take it to the whole new level. You must need to build an optimal Omnichannel strategy, that balances online and retail perfectly, but is also flexible.
Evolution of customer demand and Marketing 4.0
The volatality of demand, ever evolving customer preferences, and multiple channels mean that Marketing has to evolve to a whole new level. You need to very quickly “sense” changing customer demand, customer preferences, make sense of that data, and adapt accordingly.
Much before the pandemic, the tarrif war already was casting a shadow on globalization. The pandemic took it a whole new level but despite all that – from a procurement and sourcing aspect- Globalization is always going to stay. But the uncertainities associated with having a Global Supply Chain footprint has increased exponentially. CPG Supply chains can no longer be put plainly in the category of “efficient” Supply Chains. It needs to be a right balance of efficiency and responsiveness.
In addition to the challenges of having a Global manufacturing footprint, a key aspect that CPG companies now need to look into is building a flexible Manufacturing network. Real time visibility and interconnectivity of manufacturing with other functions is obviously a key aspect of building a flexible and responsive manufacturing capability. Think about the ad-hoc SKU rationalization that many CPG companies had to do during the pandemic and the pain and challenges they had to go through to adjust theor manufacturing capabilities to align with that rationalization.
Omnichannel Marketing, extremely demanding customers, evre increasing importance of last mile, pressure to have the “right inventory in right quantity at the right time in the right place”, all that, to put it bluntly, can not be all balanced without building a very strong technology platform.
Necessity to continuously Innovate
While your people and processes (which in my mind translate into culture) play a more significant role as far as your organization’s capacity to innovate goes, technology is a necessary ingredient in the secret receipe of innovation
Why you need to be a Tech company to tackle these challenges
Each of the sample set of challenges can be addressed by my favorite combination of the three factors- People, processes and Technology. But on top of robust processes, you need to lay a foundation of technology that will help your people to manage challenges like those mentioned above more efficiently.
An example of a Technology CPG company architecture
The illustration below, shows, partially how building yourself as a technology platform company in the long run is the only way to be able to manage the chanllenges AND be a leader in your space. The sooner you start working in this direction, the sooner you will be able to attain the capability. And if you are among the first few to build the capability,you will always have a consistent lead. This scribbling is obviously very high level. The “TECHNOLOGY PLATFORM” depicted below will need to be designed at the granularest detail possible and then these details will be added/built over a period of 5 distinct stages. Among many other obvious inputs, your corporate strategy, market landscape and competitors landscape will also play a key role in defining the granularities.
The scribbled diagram below is just a high level representation of how numerous systems and analytics platforms will integrate into a singloe platform, resulting into an overall technology platform, on which the Supply Chain will operate.
The Journey of becoming a tech company
But we all know that the journey to become a teach company, from a CPG company is going to be very challenging, if not radical. I also believe that over a period of time, companies will not have an option but WILL have to transform to a tech company. The best approach is to start as soon as possible so that you can build the capability in a planned and structured way vs clobbing together a Frankestein when you realize you will not be able to survive without transforming into one.
The hand drawn graph below shows a potential path that companies can take. Not cast in stone but a general representation that you will have to make the transformation gradually. I have indicated frst two levels only since this is just representational. As you can obviously imagine, the journey needs to be designed uniquely for each company but in my template, that customized journey can also be standardized into a five step journey.
Views expressed are my own.