Agile Response for FMCG Supply Chains
A time of big change for FMCG
The FMCG industry is seeing major changes as large FMCG companies are being taken on by highly innovative, nimble, ultra-focused micro-brands. The days of blind brand loyalty are over. Today, rather than buying into brands based on reputation, customer demand is based on how quickly and conveniently they can get their hands on the products they want, how much they identify with the products and how deeply their products understand them and personalize to their needs and desires.
The post-storefront world, served to you by COVID-19
COVID 19 is a once-in-a-century pandemic. The disruption unleashed is unprecedented, causing severed flow of goods and people, stalled economies, and an impending global recession. Experts are unable to accurately forecast the recovery - a third of the global population in some form of lock down, and mass unemployment, mass bankruptcies, and bail-outs are expected.
Experts are calling the post-crisis economy the Low Touch Economy – D2C activity is expected to increase significantly with every major modern trade retailer jumping into this headfirst. Companies should consider the extraordinary challenge they are facing and identify actions now that will improve their competitive position
Large FMCG companies, big brands are being nibbled to death
Even before COVID19, the dominance of Big CPG companies was under severe threat. Emerging Players – Direct-to-Consumer (D2C), Digital Native Vertical Brands (DNVB), and other micro-brands and regional players are more innovative along multiple dimensions, with laser focus on their individual micro-segments.
Not long ago, big FMCG companies had a seemingly impenetrable moat, powered by their large size and capital; this moat was very effective, until the internet came along. Piece by piece, each one of these barriers came crashing down. The barriers to entry that once protected legacy FMCG brands, are now acting like a prison. Now, the old FMCG machine is sputtering and facing severe profit pressures.
FMCG industry is in full disruption
Setting aside COVID19, there are 4 other major forces that are shaping the FMCG industry
• Activist investors wanting companies to cut costs, divest business lines, and revamp portfolios, along very specific lines
• Consumers demanding extremely personalized products and services
• New FMCG entrants entering the market at an unprecedented rate fueled by VC capital
• FMCG companies are finding newer routes-to-market and personalized distribution technologies to reach customers.
As companies respond to these forces, they invariably create increasing amounts of operational complexity. The FMCG industry is in midst of full disruption – business is going to become more volatile and competition is going to get fiercer. Covid-19 only exacerbates all these factors.
Operational complexity has spiked
As a consequence of the market disruption, we find that operational complexity has risen tremendously for FMCG companies over the last 5-7 years. Companies are struggling with all planning tasks – from data munging, to running analytics on operational data, to creating forecasts, demand plans, inventory plans, etc. These trends are expected to only get worse over time.
Operational problems hit emerging brands faster and harder with scale, usually much earlier than their larger competitors. Emerging brands typically tend to be weaker in planning due to their nascent supply chains, processes, market experience, and lower investments in supply chain technologies and digitization.
Planning machinery is inundated
FMCG planners usually deal with tens of thousands of sku-location combinations is common in FMCG . Add to this the complexity of inventory positions and expiry, service level and returns targets, numerous kinds of customer promotions, sudden changes in demand from store closures, weather, etc.
Planning is turning into an increasingly uphill task for planning organizations; planners cannot humanly keep up with the granularity and effort needed. Under traditional planning, the overall business performance and any business improvement, is incidental rather than planned
Build sustainable market advantage through Adaptive Planning in FMCG
How does all this affect supply chain operations? This shift means one thing for companies: speed is everything. For FMCG operations teams, the challenge and competitive advantage becomes: How well do you find and execute against opportunities and risks, in this competitive, dynamic market? e.g.
• Can you ensure that you have a much better on-shelf availability and freshness than your competitors?
• Can you pinpoint revenue opportunities fast and rush inventories to those locations quickly?
• Can you detect and re-balance inventory imbalances daily to move inventory away from wastages?
• Can you take these revenue-inventory bets scientifically, daily, at a sku-location level?
Adaptive Planning offers a powerful and scalable solution to meet this challenge. By leveraging Cognitive AI and Cloud Computing, companies can increase their revenues and reduce their wastages. But first, this requires a paradigm shift in the planning mindset.
A new planning paradigm – Sense and Pivot
Even today’s most digitally advanced supply chains still try to first predict what will happen, then optimize performance against plan. The problem is, the world is not predictable and plans start diverging from reality even as they are created. This traditional planning mindset of Predict-then-Plan needs to be dislodged, and replaced with the Sense and Pivot approach.
Take for example a beverage company that predicts demand 4-weeks out, manufactures, and pushes demand into stores, confident about demand from loyal customers. Such a plan and pray approach, may even work for a while. However, when conditions change, this company will be at the mercy of their sales force’s ability to detect and complete the feedback loop on market changes, actions of competitors, and changing tastes of customers.
Contrast this with a company that positions and re-balances inventories periodically based on daily or hourly demand-pull signals. Over time, this company’s ability to handle demand-inventory opportunities and risks, nuances, translates into commercial excellence that sets the company far above its competitors.
How is Adaptive Planning Different from Traditional Planning?
Planning, execution, and learning must merge into an automated and self-adaptive environment.
However, a mere change in mindset and platitudes alone will not help companies get benefits - that’s where cognitive AI and cloud computing come into the picture. Together, they form a formidable combination to deliver on the following real differences
Make it Happen
FMCG companies who want to survive this disruption revolution must think about their ultimate goal, and then build a strategy to support it. Companies are looking to their executive team to create a sustainable advantage to survive the changing tides. What is needed today is bold action.
Thanks to advances in AI and cloud computing, adaptive planning is now practical, achievable, and affordable. These tools and processes need to be in place to contextualize and transform planning to deliver this sustainable advantage. The imperative to be more agile is too pressing to be overly cautious – don’t wait for perfect data, systems, etc.
By embracing adaptive planning, companies can turn volatility and unpredictability into sources of competitive advantage. In the process, you will unshackle your data, unshackle your planners, and unleash your organizations’ full operations potential