Digital Transformation in the CPG Sector

Like every industry on the planet, digital disruption is shaking up the consumer packaged goods (CPG) space.

According to Deloitte, CPGs often struggle to stay organized, and, in many cases, still operate with fragmented data sets that fail to produce actionable insights. That means, many organizations are sitting on mountains of valuable insights that never get used.

On top of everything else, they’re dealing with these massive inventory catalogs, complex supply chain operations, and super-slim margins.

While digital has already changed how CPGs sell to and interact with customers, how they use data, and how they design supply chain operations, the industry has some catching up to do.

Old business models and legacy tech are no longer working, and CPGs must break with the status quo if they want to stay in the game.

In this article, you’ll learn how real brands are transforming supply chains, partnerships, and everything else — by embracing big data, AI, and a new mindset.

Tap Into the Benefits of the “Connected Supply Chain”

BCG explains that, oftentimes, CPGs are looking at two transformations. First, they need to modernize the core stack – so moving from a legacy platform to a unified cloud-based one like D365.

Then, they need to immediately get started on applying AI and automation to unlock immediate value.

Eventually, CPGs can leverage predictive analytics to improve forecasting and demand planning – which allows them to move from a reactive approach to a proactive, forward-looking strategy where they can rapidly respond to new customer needs and prepare for many versions of the future.

But it takes time to get there.

For example, Conagra Brands took on a multi-year digital transformation that eventually enabled them to better predict demand forecasting. The company digitized their entire supply chain, then layered in IoT devices to further enhance visibility and efficiencies across all of its facilities.

And, BRF eventually worked its way up to deploying Azure Machine Learning across the entire company – improving decision-making, efficiency, customer satisfaction, and profitability.

However, in both of these cases, moving from manual processes to a fully automated, intelligent supply chain was an incremental process.

Balance Growth With Resilience

Digital transformation can help CPGs navigate the tricky double bind of trying to build resilience while also fueling growth.

Essentially, that means using digital technologies in two distinct ways – as a means of controlling and optimizing costs, and as a tool for fueling constant innovation.

A few things you can do here:

Reallocate Resources to Fund Growth. A big theme across all industries right now is strategic cost optimization. Per Gartner, this is a continuous cycle of measuring functional processes, cutting costs in non-essential areas, then reallocating those funds to the areas that need it most.

As an example, PwC helped a Fortune 200 CPG overcome stagnation after experiencing years of steady growth. The company — still netting billions of dollars in annual revenue at the time — needed to free up funding to build out digital capabilities.

Initially, the client was looking for help identifying cost-cutting opportunities. But, consultants soon realized that they needed to completely overhaul the company’s core operating model, structure, and internal culture to win back its position in the global marketplace.

Consultants worked with the client to ID and eliminate process inefficiencies, redesign the sales model, and help clients redeploy assets toward engineering and research activities that could support product innovation.

The company saved ~$500M over a three-year period and is currently seeing an increase in organic growth. But, PwC reports that the company is still implementing its transformation plan, layer by layer.

Pursue the Right Digital Partnerships. MIT experts advise orgs to pursue “dynamic, digital partnerships” to reach new market segments and offer a wider range of products to existing customers.

Essentially, digital partnerships allow CPGs to pool limited resources. That way, they can reap the benefits of having more inventory and generating new business without overspending on warehousing, advertising, and so on.

That said, in order to reap the benefits of digital partnerships, you’ll need to have a digital strategy in place. Think – self-service portals, omnichannel shopping and support, and an e-commerce solution that connects to the rest of your business.

Optimize Supply Chain Operations. Another way you might drive cost-effective improvements is by accelerating investments in automating and optimizing the supply chain.

For example, if your supply chain management solution is built on a unified platform like D365, you’ll gain end-to-end visibility into performance and operations, which then empowers employees to make faster, smarter business decisions.

You might use something like the Power Automate Process Advisor to identify inefficiencies in your workflows.

Or, use cognitive AI analytics to surface insights from unstructured product, process, and consumer data, which can then be leveraged in a variety of ways to drive improvements to core processes.

This allows you to run reports on critical KPIs that quantify things like quality, productivity, even what percentage of packaging materials are made from post-consumer waste.

Facilitate Innovation

You’ll need to find ways to make it easier for employees to drive improvements on their own.

For example, prioritizing the “connected supply chain” makes it possible for everyone — manufacturing, finance, marketing, customer service — to communicate and align around a shared vision.

Then from there, cross-functional teams can join forces and focus on the improvements and opportunities with real transformational power.

That said, you’ll probably need to do more than tear down silos.

For L’Oreal, part of the solution was investing in better hybrid work solutions. The cosmetics brand used Microsoft 365 and Microsoft Teams to enable collaboration and co-creation across all business units, locations, and time zones.

Teams allows colleagues to take “factory tours” remotely – allowing global teams to work together to identify and solve problems, bounce ideas off one another, and troubleshoot challenges.

While L’Oreal is a massive global enterprise, transforming remote collaboration allowed them to embrace the agile best practices typically found among smaller, digitally-native orgs.

Additionally, the company used Teams to build a virtual training program, which connects disparate colleagues in training sessions that teach new skills like project planning, as well as breakout rooms and community groups that bring together employees with shared interests.

Final Thoughts

CPG transformation begins with the supply chain. Everything — from fueling growth and optimizing inventory to streamlined procurement and delivering consistently great experiences — depends on gaining control of the supply chain.

Like every digital transformation, it’s still a matter of unifying data and operations. But – in this sector, a connected, intelligent supply chain offering end-to-end visibility is the foundation that paves the way for more transformative projects.

Velosio offers industry-specific expertise, solutions, and long-term support to CPGs — helping them navigate digital challenges and take action on new opportunities.

Over the past 30+ years, we’ve helped thousands of clients gain deep insight into supply chain operations, reimagine core processes, and leverage the latest technology to boost performance and profitability. Contact us today to find out more.