CPG firms are facing increasing pressure to improve performance and show positive growth in the prevailing economic conditions. The high cost of raw materials, along with continuous inefficiencies in the existing ecosystem, private-label intrusion by retailers and disappointing growth in developing markets, is forcing CPG firms to optimize - fast and effectively. However, without collaboration with the retailers, the net strategy can be summarized simply as throwing darts in the dark and hoping to hit the target.
We increasingly see CPG firms starting to pilot connected POS solutions. These solutions are either being launched as independently managed dispensing kiosks in public places, as concept retail outlets owned and operated by the CPG firms, or as joint IT collaboration initiatives with key retailers.
We will see bigger and better connected POS capabilities being launched by CPG firms to yield some of the key advantages mentioned below:
New/Improved Product Formulation
CPG firms have traditionally relied on structured/regulated new product management lifecycles. The process worked well in an era where competition was less fierce and margins were plenty. In the new economy, entrenched with competition, lower margins, and a high level of customization for fine-tuned market segmentation - time to market and lower cost of product formulation is strictly warranted. Working closely with end consumers allows for more experimentation and faster response to changing expectations.
Closed-loop, on-demand customization at POS is now a reality. Since POS is connected with the enterprise, it allows for better understanding of consumer preferences, formulation consumption, and trends. The capabilities will allow CPG firms to roll new variations into target markets - faster and with lower cost - to experiment. As new product formulations prove their alliance with loyal customers, it will be easy for firms to work towards scalability and larger rollouts - a sure-fire approach for a new product launch.
For CPG firms that are dispensing product through connected kiosks that have a digital engagement interface at the POS, capabilities and opportunities will exist for easy experimentation with branding and packaging without going through lengthy internal approvals, expensive printing and long test marketing.
Trade Promotion Management & Optimization
CPG firms have long been investing in well-established channel partners to move inventory to consumers. Trade promotion campaigns are planned, budgeted, scheduled and executed but not well monitored. Promotions are usually analyzed in retrospect to understand the net impact. There was no scope for just-in-time improvising.
In the connected world, CPG firms will benefit from real-time monitoring of seasonality, weather and impact of promotional events on revenue lift to fine-tune the promotion (data-driven optimization) to achieve the desired business benefits - volume, margins or brand penetration. If a connected kiosk is being leveraged, the CPG firm will be able to experiment with various planograms - (think A/B multivariate testing - to succinctly identify the most effective promotion for any given market/demographics).
Efficient planogram and promotion strategies will enable retail excellence resulting in faster turnaround of retail inventory - a huge benefit for retail partners. There is also the possibility for channels to be optimized for product mix and rewarded strictly for results instead of perceived benefits.
Demand/Forecast, Inventory & Supply Chain Optimization
CPG firms have long relied on drop shipment at distribution centers, historic purchase behavior, and seasonality trend data to optimize demand and inventory. This approach has provided meaningful optimization and cash flow advantages across the board for a long time, but has been disrupted since the introduction of micro-segment targeting - resulting in increased number of supporting SKUs.
Over the past two to three years, a large number of CPG firms were forced to downstream SKUs in an attempt to control demand/inventory variations. This resulted in negative growth for most CPG firms because such a move resulted in stock-outs - with direct revenue impact resulting from customer defection to readily available alternates.
POS data is the purest form of consumption intelligence available, but most often not available to CPG firms. Enabling connected POS will allow CPG firms to monitor consumption trends - along with seasonality and trade promotion events - to respond with optimal demand and inventory management at the back end. Interestingly, the savings for CPG firms directly translate into lower cost for retailers (because of controlled cost of goods sold for their vendor/supplier). The retail firms can in turn consider passing on the savings to offer lower cost to their shoppers to improve their inventory turnaround time and cash flow situation.
Also, having a clear insight into retailer inventory strategy, promotional effectiveness and seasonality consumption trends will allow CPG firms to streamline not only their suppliers and manufacturing schedule but also their S&OP planning processes.
Source: MindTree Ltd.
Keywords: CPG, Retail, RFID, Wireless, Bar Code & Voice, Business Intelligence & Analytics, Technology, Business Strategy Alignment, Supply Chain Analysis & Consulting, Global Supply Chain Management, Demand Forecasting, Forecast Optimization, S&OP, On-Demand Customization, Trade Promotion Management, Data-Driven Optimization
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