Skip to main content

Opportunity Knocks

The consumer goods business model is a simmering pot of challenges that includes consumer demand, retail relationships and brand loyalty. This month, CGT stirs the pot with Thomas Bornemann, managing director of consumer products for Clarkston Consulting. In addition to serving up ideas to solve industry issues, Bornemann explains why it makes sense to view the industry's growing pains as a landscape full of golden opportunities.

What makes the consumer goods industry unique?
The most unique aspect of the CG industry is the rapid pace of change within the industry, driven by very strong customers. Retailers continue to consolidate their size and power, driving greater change into this industry. Product life cycles are getting increasingly shorter and investments in brands have less time to repay than ever before. It is an industry driven by the need to be reactive and nimble. Leading companies are learning to adapt by defining clear and consistent strategies, and then aligning all subsequent activities to those strategies. Relentlessly measuring this alignment and execution of strategies is paramount because the industry does not allow time for errors. The ability to focus on what's important, and what's core will differentiate the winners. The most important thing that consumer goods companies must do to stay current is to create a learning organization that can rapidly assimilate change.

Looking towards 2004, what are some of the key drivers for the industry?
Successful marketing and sales functions, demand creation, continue to be the highest priority for consumer goods companies in 2004. Effective brand and product strategies that are hard linked to both customer and final consumer profitability are the only real measure of success in 2004. This requires a detailed understanding of the increasing pallet of choice in this industry, more new products and brand extensions, mapped against the compressed product lifecycles. In other words, every new product costs more to develop and market, but has a shorter lifecycle and thus, brings less returns over time. Companies that can manage this innovation and couple it to real consumer intimacy will be able to have better products, better promotions, more effective marketing execution and greater profits. Clearly understanding which customers and consumer profiles generate the most profits, and with which products, will be the key to profitable growth. The reverse will also define winners--those companies that are able to "kill" or disengage products and customers that consume precious time, yet don't support profitable growth.

While this demand, sales and marketing focus is the highest priority, having a supply chain that can quickly and flexibly meet these rapidly changing demands remains the second highest driver of success. Today's CG supply chains must be able to incorporate UCCnet, RFID tests and roll-out plans and perhaps most importantly, support compressed new product development launch times. Lastly, the ever greater focus on margins is leading many companies to constantly reevaluate what is a core competency, what should be manufactured in-house and where, or what should be outsourced.

How do you see Sarbanes-Oxley (SOX) legislation affecting how manufacturers run their business, specifically around Trade Promotion Management?
The specifics to meet compliance can be burdensome at first, but once processes are established that incorporate the necessary compliance steps, it is not that difficult to execute against. Both trade promotions management and pricing practices warrant special attention as Sarbanes-Oxley is adopted, as these are areas where many companies have allowed line owners to operate with a great deal of latitude.

Historically, trade promotions management and pricing practices have been difficult to measure, but now is completely within the realm of what needs greater scrutiny and control. A unique side effect of SOX compliance has been the drive to consolidate and globalize some of these functions that traditionally have been left very open to regional or local interpretations.

Are the majority of manufacturers you talk with looking at a 'Slap and Ship' solution to RFID, or are they considering a more comprehensive solution that integrates all areas of the supply chain?
All our RFID projects are split into two clear phases: Initial pilots that enable short-term compliance with retailer needs, and a more comprehensive longer-term view that begins to analyze and evaluate the road map leading to complete adoption. The "slap and ship" phenomenon is clearly a short-term reaction to meeting compliance, as it will take a greater maturity of processes and technology before the longer-term solutions are defined and implemented. Leading companies are actively pursuing the longer-term solutions in parallel to the immediate plans. Key decisions around integrating the chips much farther back in the supply chain, as well as clear definition of processes and risk sharing throughout the supply network, will shape the long-term solutions.

In today's CG industry the pace of adoption is fast. Bar codes took about 15 years to be fully adopted, it is reasonable to assume RFID tags may take as long. At this moment, if a CG company is not piloting both the short-term "compliance adoption" and developing a process road map for full adoption over the next two to five years, they are fast becoming laggards and risk severe supply chain inefficiencies, which will hinder customer service.

How important is it for consumer goods organizations to integrate Supply & the Demand Chains, and in what areas are CGs doing a good job?
This is one of my favorite topics, because at the end of the day, only companies that are nimble, responsive and LISTEN to their consumers' and customers' needs will exist in the long run. The entire "make-to-stock" model is flawed. It was based on incorrect assumptions of efficiencies, as evidenced by plants being measured on throughput and absorption--not rapid response rates to changing demands, and a highly limited set of information flows. In the past, companies had no choice but to operate "in the dark" and try to guess, some call it forecast, what consumer needs would be.

So this is consistent with the industry's move from a "push" to a "pull" model?
Yes. Today's world is different. The amount of real-time information available is much better, yet remains almost entirely untapped. For example, retailers have loyalty programs which can isolate highly profitable trends down to the individual household. Yet few companies can begin to think of how such information can be used, because they are limited by inflexible and unresponsive supply chains. The make-to-stock model fails to focus on what it means to drive top-line growth and be consumer responsive. Only companies that "graduate" to a make-to-order mindset will win. Virtually every process in a company has to be re-tooled to support this change. Leading companies like Dell and P&G understand this but most senior executives are still a long-way off from embracing this change. This kind of massive change requires very strong leadership, which is perhaps one of the scarcest skill sets at most companies, which means the lessons will be painful for many companies before real progress is achieved.

X
This ad will auto-close in 10 seconds