Tackling Mass Customization in the CPG Industry
Manufacturers of almost any product are realizing the opportunities presented by having consumers design their own offerings. Believe it or not, discussions about mass customization within the manufacturing sector has been going on for more than 20 years. At its core is the ability to offer a tremendous increase in variety and customization without a corresponding increase in costs to the customers buying the products.
In the business-to-business industrial manufacturing realm, mass customization has its roots in the delivery of nearly identical products tailored for individual customers. Once a manufacturer confirmed the color or dimensional change with the customer, it then dealt with the repeated delivery of that designed variation. The goal was to develop an extended manufacturing supply chain that could combine the low unit costs of mass production processes with the flexibility of individual customization. This philosophy is now being applied to consumer packaged goods.
In the CPG world, mass customization is readily available through websites that offer products ranging from personalized printing on small candies and special granola blended with user-selected ingredients, to bespoke apparel and monogrammed products. Although these customized offerings typically come with at least some level of premium pricing, the consumer weighs that extra cost against the value offered by the ability to make their products unique.
The Challenge for the Supply Chain
Historically, CPG products are the prototypical examples of a make-to-stock manufacturing strategy. What could be more make-to-stock than packages of cereal or containers of laundry detergent that are, literally, put on shelves by stock employees?
Competitive pressures in the CPG marketplace, however, have radically changed consumer expectations for standard food and beverage items. Economic conditions, trends, health concerns and social media have all influenced the products consumers want to buy today. As social media continues to expand, trends are changing faster than ever before as people share their tastes, preferences and individualism with the world via the Internet.
This not only has people copying others, it also inspires their own creativity, which translates into the desire for even more customized products. These trends are influencing manufacturers to step up their customized product offerings and help boost sales, brand awareness and loyalty.
Packaging, which has always been important, has become a critical requirement for the delivery of even the most basic food items. Cereal is delivered with regional packaging that supports local sales teams. Consumers demand unique, portable, trendy packaging for many food and beverage items. Environmental groups are pressuring the industry to provide sustainable and recyclable products. Boutique brands feature store-specific branding.
Although most food companies have not shifted to make-to-order strategies, the number of SKUs that leave the food factory has exploded exponentially — all with very little variation in the actual food product.
This kind of customization ripples back through the supply chain to the manufacturers of flexible packaging itself. For example, a manufacturer may be making re-sealable pouches for consumer products such as trail mix. The trail mix may always include the same percentages of dried fruits and nuts. However, the trail mix supplier must deliver constant variation to meet the needs of the fickle, “I want the newest thing,” consumer market.
Therefore, the image on the packaging varies from season to season. There is springtime trail mix with a package featuring pastels and fresh colors. There is a summer trail mix with a package featuring a bold sun and fun on the beach. There is even “back to school” trail mix with a package featuring students and their books headed off to class.
Seasonal differentiation of products has expanded to all areas of food and beverage and many other consumer items to increase sales and market share. The packaging is clearly manufactured in a make-to-order environment and, in many instances, the exact SKU is only made once. This year’s springtime trail mix packaging will certainly be different than last year's.
Mass customization and configured products offer consumers distinctive, individualized choices, and they give manufacturers enormous opportunities to advance sales, promote brands and gain on competitors.
They also offer a number of challenges to the manufacturer. Before diving into the business of customized products, companies must incorporate this approach into their strategic plans. The thought process should be similar to that used for promotions. Customization of products should improve sales and profitability without increasing costs. Accurate product forecasting for base products and distribution plans need to channel back to manufacturing and procurement. Planning and execution is critical as setups and changeovers become more challenging and additional components, ingredients and packaging need to be designed and ordered.
As we sit here enjoying this season’s trail mix, we can only wonder when next season’s offering will show up at the store and what the package design and flavors will be. Or maybe we should just go online and design our own while we wait for the packages in the store.
As more manufacturers give consumers the ability to customize their products, the CPG marketplace will continue to expand. This gives companies the ability to boost profits, expand offerings and engage directly with their consumers. Those that succeed will be the ones who have laid out their customization strategies clearly and build simple, executable models.
Stephen Dombroski is senior marketing manager for the consumer, food & beverage markets at QAD.