Consumer product companies face a difficult balancing act. Dynamic supply costs have put pressure on margins, and price-conscious shoppers have limited how much of that expense can be passed along. Decisions about what to produce, where to source materials, which products to offer and which to promote all impact net profit, but companies often lack a clear view of how those choices interact.
Planning around average costs and sales volumes can mask those relationships, leaving teams pursuing savings or growth without understanding the sources of value leakage. But connecting supply chain decisions with commercial and financial planning can help manufacturers respond to changing conditions while pursuing profitable growth. Following are insights CPG leaders can utilize to achieve their goals:
1. Cost-to-Serve: Unlocking Margin Potential in Every Product Decision
A brand’s overall results can conceal big differences between segments, channels, pack sizes and markets. Without those details, companies can struggle to identify which products earn their place, and which consume more resources than they justify.
“When serving different segments, do you know when the incremental revenue merits the investment required?” asks Stacie Immesberger, director of supply chain domain advisory at Anaplan.
The challenge extends beyond collecting information. Bob Debicki, Anaplan’s general manager of consumer strategy, says companies also need to test how a change would affect the business. In some cases, a manufacturer might reduce promotional spending on one pack size and redirect that money toward another.
Understanding the cost to serve each product, customer and channel makes those comparisons possible. The analysis should reflect timing as well, since a promotion or supply constraint can change the economics of selling the same item.
2. Supply Volatility: Protecting Margins in Fluctuating Markets
Changes in material costs, availability and delivery times can force manufacturers to reconsider sourcing and production decisions. However, evaluating each choice separately can create some expensive blind spots.
Immesberger points to the example of a basic purchasing tradeoff where a cheaper input may reduce production yield enough to erase potential savings. The enterprise should work in concert, capturing the cascading impacts of even a seemingly simple decision.
Scenario planning allows companies to examine those relationships proactively. If a commodity becomes more expensive, how would changing the recipe affect production? Alternatively, should the company adjust its product mix or reconsider which items it promotes?
Those questions require shared information and a process for showing other functions what has changed. Conversely, waiting for emails to circulate across departments leaves teams making decisions with different assumptions.
“For some time people pursued the ideal of a single plan. But plans need to be assessed taking into account the context of the unique decisions and constraints of various stakeholders. Instead, what is important is that the underlying data is shared, and each decision works in harmony to drive the enterprise forward,” Immesberger explains.
3. Cash Protection: Unlocking Working Capital via Real-Time Demand Sensing
Excess inventory ties up cash, but reducing stock without understanding customer needs can cost sales. Faster feedback on change — whether upstream or down — helps companies reconsider what they source, make, sell and ship. The key is to make sure updated information becomes available before costly decisions are made.
Debicki describes the consequences of getting that balance wrong, where shipping too much can leave goods selling at a discount, while shipping too little leads to missed opportunities.
Immesberger suggests comparing plans in order to consciously weigh tradeoffs. At one time, many consumer goods companies operated in a world of stability. Disruption introduced agility and then anti-fragility into supply chain planning.
“In a less stable world, nimble beats optimal,” she posits.
That calls for continuous testing and adjustment as dynamics change — whether demand or supply. Faced with rising input costs, a price increase might improve unit margin, but things don’t occur in a vacuum. You have to be aware that, at some point, shoppers are driven to an alternative.
4. Strategic Simplification: Driving Growth with a Smarter, Leaner Product Mix
Every additional product can bring packaging requirements and production changeovers. Those costs are easy to overlook when assortment decisions focus on revenue.
“A lot of these categories rely on high-speed efficiency,” Immesberger says.
Simplifying the range requires understanding how shoppers choose certain products. If a preferred flavor is unavailable, will they select another from the same brand, switch brands or leave the store altogether?
But smart decisions require looking beyond simply cutting the lowest-volume items. Brands need to compare the incremental demand a product brings, with its effect on operating costs and sales of other products.
That analysis should account for each item’s role in the broader portfolio, and be tailored to different markets, channels and experiences. A leaner assortment needs to preserve the breadth that matters to consumers while removing complexity that does little for profit, for a difficult yet essential balance.
“It’s really hard to come up with the right portfolio to ensure that you hold your market share, the revenue you’re trying to achieve, and that you don’t alienate your consumer,” Debicki notes.
5. Next-Gen Optimization: Bridging Probabilistic AI and Deterministic Planning
Artificial intelligence can help identify changing demand, and flag unusual patterns, but its usefulness depends on the business information behind it. Additionally, predictions must connect to what a company can produce, supply and afford.
To that end, probabilistic AI considers possible outcomes and their likelihood, while deterministic planning applies defined calculations to data and assumptions, allowing teams to evaluate the operational and financial implications. For actionable and accurate recommendations from AI, both need to be implemented.
“Get your data right, get your process right, get all your planning activities established and build that framework,” Debicki says.
With that foundation, he adds, AI can continually examine information and surface issues that planners might lack the time to investigate. The challenge is establishing the shared data and working practices needed to turn those findings into coordinated decisions.
How Anaplan Addresses These Challenges
Anaplan’s approach brings operational, commercial and financial information into a shared planning environment, allowing teams to examine how their decisions affect one another. Debicki describes the goal as reducing the profit lost through disconnected decisions.
“Every point of decision, you can make a better decision. Then over time, you’re going to have an aggregate of a better margin picture,” Debicki says.
The platform also enables companies to organize information by product, customer and time, and then test different scenarios in real time. Teams can examine changes in purchasing quantities, promotional spending or assortment and trace the financial implications, while product and shopper attributes help inform which items to keep in locations.
Connecting these decisions gives supply chain teams a stronger role in evaluating a company’s profitability. Operational information can inform choices about pricing and product mix before plans are finalized.
Anaplan combines its deterministic calculation engine with AI capabilities that can examine the planning data continuously, flag anomalies and help users explore questions they might otherwise lack the time or expertise to pursue. The intended result is a shorter path from recognizing a problem to evaluating a response.
That process also needs to continue after a decision is made, meaning that teams must check the outcome and revise their assumptions as conditions change.
“Test those decisions quickly and circle back — don’t act like it’s a one-and-done,” Immesberger says.
Resource Link: https://www.anaplan.com/industries/consumer-goods/
