Insights

Reset, redefine and reinvent to build a resilient CPG organisation

Kumaran CR, Consulting Practice Leader, Adete Thakur, Consulting Lead

Manufacturers of consumer packaged goods have had it tough in recent years. Skyrocketing input costs have eroded margins, workforce shortages abound, and global supply chains continue to be disrupted.

Meanwhile, competition has tightened. Large players are looking for vertical integration, retailers are focusing on private labels, and a fierce battle is raging for physical and digital shelf space to increase that all-important share of the customer’s mind and wallet.

Adding to these headwinds are ever-evolving customer expectations. Today’s customers want meaningful experiences, seeking out value, convenience, and flexibility on their own terms.

According to the Australian Bureau of Statistics, online retail turnover increased by 22.8% ($677.9m) in the year to February 2022. The increased adoption of online shopping accelerated by COVID has made product discovery and comparison much easier, with greater price transparency. And these behaviours and expectations are to stay.

As a result, there’s a compelling case for CPG companies to recalibrate their business models and value chain.

Here are the three tenets we expect CPG business leaders to focus on:

• Data-led governance and decision-making are crucial to the effective execution of business strategy.
• An agile mindset and ways of working are made possible by robust processes and technology accelerators.
• Persistent business streamlining is essential to reduce complexity and inefficiencies within and across business functions.

Key challenges facing CPG companies

• Functional silos and enterprise inefficiencies - To meet revenue and margin targets, execution must align with the organisation’s strategy and financial performance. For example, misaligned marketing and sales functions, increasing SKU proliferation, poor forecast accuracy, changing production plans, poor line efficiency, soaring labour and energy costs, increased spot buying and escalating logistics costs can all contribute to a higher cost-to-serve. Sound familiar? However, breaking this vicious circle of operational inefficiencies and interdependency is easier said than done.
• Evolving customer expectations – Customer segments are constantly evolving, and so are their expectations, preferences and buying decision processes. Customers are digitally savvy, environmentally conscious and value driven. They demand a seamless omnichannel experience, while simultaneously expecting each interaction with the brand at each of the various buying stages to be personalised to them. How might you extract valuable insights from these interactions to improve your new product development (NPD) process? Can these insights help you to increase customer lifetime value – such as with an improved pricing model or more efficient trade promotions? Is your branding compelling enough to engage meaningfully with customers? Can you optimise your CAPEX when developing valued products?
• Misaligned ways of working - An area that is too often neglected is an organisation’s workplace culture. How do your people work together? How do they communicate, interact and collaborate? Without an innovation-led growth mindset – coupled with a culture of routine measurement, consistent communication and cross-functional collaboration – any business is more likely to struggle, or even fail in the long run.

While these are some of the common challenges organisations face today, their magnitude, complexity and potential impact will vary. How you prioritise these challenges will depend on your organisation’s strengths; its brand, revenue, and market positioning; and the maturity of its data, technology and people strategies.

Unlocking and realising value

The key to addressing all of these challenges is alignment. Strategy needs to align with ways of working, with processes, with governance and with technology enablers.

There are three fundamental steps to unlocking more value across your organisation using UST’s proprietary Value Realisation Framework:

Conclusion

The COVID-19 pandemic disrupted global supply chains while simultaneously accelerating digital adoption by consumers. But as supply chains and economies began to recover, the Ukraine-Russia conflict triggered a second wave of disruption.

But within every crisis there is opportunity. For CPG companies, that opportunity is to future-proof their business models and become more resilient:

• Reset past issues and challenges,
• Redefine customer-centric value chains,
• Reinvent ways of working.

The quest to deliver profitable and sustainable growth requires a digital business transformation – one focused on customer-centricity, agile teams and data-driven decision making. And at the heart of this transformation are scalable, flexible cloud-native technologies that are secure by design.

Are you prepared?