Consumer packaged goods (CPG) companies—particularly manufacturers of
foods, beverages and other products whose brands are recognized
throughout the world—face increasing challenges in today’s market.
John Blanchard, principal analyst at ARC Advisory Group Inc., in Dedham, Mass., says that knowledge management tools are critical to the sustainable success of companies in this sector. Chief among the challenges are the demands of powerful retailers such as Wal-Mart Stores Inc., which accounts for 15 percent to 30 percent of the total sales of many leading manufacturers.Wal-Mart and other major retailers put pressure on margins and demand responsive and innovative partners. At the same time, they continue to fuel growth in high-quality private-label products. This generates additional pressure to maintain category leadership and brand recognition, the cornerstones for success in these industries.Mature traditional markets in the United States and Europe offer limited growth opportunities, while more value-conscious consumers are demanding a wider variety of high-quality, safe and more convenient products. Demographics are also changing rapidly in these mature markets. As a result, the number of stock keeping unit (SKUs) a single company has to maintain continues to grow. Traditional forecast-based manufacturing and product inventory reserves are proving inadequate to meet continually changing customer needs. These developments are all occurring in an environment of increasing government regulations that result in more formulation and packaging changes, as well as better recordkeeping.Industry response to date has been to rationalize and optimize product portfolios, reduce manufacturing and supply-chain costs, develop a more flexible, demand-driven manufacturing infrastructure, and grow the bottom and top lines to maintain shareholder value. Blanchard’s analysis reveals that industry leaders are aggressively seeking new markets and channels for current and new products. Some portfolio optimization will continue to be achieved through mergers, acquisitions and divestitures; however, most future margin growth will be achieved through innovation and speed-to-market.
Critical requirementThe traditional view of the product lifecycle curve is changing. Profitable, high-volume, mature name-brand products with “stable” margins and little opportunity for growth are being considered for divestiture in favor of new, innovative products that can provide continued margin enhancement throughout the maturity cycle of the product. “In such a complex and competitive environment, more effective PLM solutions are a critical business requirement,” says Blanchard.Product lifecycle management (PLM) is a rapidly emerging territory for the food and beverage, and CPG industries. While these industries share some common PLM domains with discrete manufacturing, such as product design and product data management, many functional areas such as formulation and recipe management, and packaging design fall outside of the traditional PLM solution set for the design/build world of discrete manufacturing.PLM for CPG is usually comprised of several interrelated functions, including new product development and introduction, formulation and packaging, sourcing for direct materials, manufacturing process management, quality and regulatory management, distribution and retail/customer relationship management. PLM for hybrid industries such as CPG can be assembled from various software programs, rather than purchased outright as a single commercial off-the-shelf product. Once assembled, a well-designed PLM system will manage product specifications and recipes, provide production histories, create complete product genealogies and track total product quality. According to Blanchard, the real value of PLM for the CPG sector is realized in the ability to place product data and manufacturing systems in the context of the product lifecycle.The brand portfolio of CPG giant Unilever spans 14 categories of home, personal care and food products, and includes world favorites such as Lipton, Knorr, Dove and Omo. The company, which has dual headquarters, in London and Rotterdam, The Netherlands, employs 179,000 people in 100 countries worldwide. Its products are sold in the Americas, Europe and Asia/Africa in roughly equal distribution. As with other large, fast-moving consumer goods (FMCG) companies, brand “promise” and “reputation” are being sold by Unilever on a much bigger and global scale, and with it comes heightened expectations and greater brand risk.To achieve the business transformation necessary to ensure sustainable shareholder value, Unilever formalized its strategies into its One Unilever program that is focusing resources on brands, categories and countries; a leaner, fitter business; and expansion in the developing and emerging markets. It is a restructuring program that included recognizing the crucial role that technology plays in the quality of innovation.
Change agentUnilever, for example, adopted a PLM solution, not as just another piece of software, says Blanchard, but as a cultural change agent to organize the company’s complex product lifecycle. Increasing consumer, business and regulatory requirements are such that product information requirements are going exponential. Both current and new product innovation and portfolio management are important. Innovation is critical to sustaining Unilever’s growth. “We see product innovation as one of the key drivers of top-line growth,” says Huw Evans, R&D director of information in Unilever’s Home and Personal Care Division. However, Unilever’s complex SKU portfolio had no global standard set of terminology and models. There were many regional differences, making it difficult to react and respond to the market, and to the changing cost and availability of raw materials. Global visibility of entire product portfolio and raw-material specifications was needed.Unilever recognized that common to addressing all of these business challenges is the need for joined-up product information, organizationally, geographically, and across the full product lifecycle. This meant complete, integrated product information, managed and accessible across the business from product idea generation to product delisting. Unilever needed technology that would be a “change agent” to transform its business processes and culture. Company managers decided to implement Siemens’ Simatic IT Interspec as a foundational step in their use of PLM technology.The company has worked with Siemens, the German-based technology vendor, for more than a decade on product specification management and common models, terminology and work processes. It was able to achieve global visibility for all raw-material specifications and an order-of-magnitude reduction in the number of specifications in the organization.Things really began coming together in the packaging area—one of the most dynamically changing parts of product design and one of the longest lead time components, due to involving many organizations and activities prior to final approval and release.Most FMCG companies go through a major packaging redesign on all of their major brands about every three years. With the current “green” packaging initiatives of major retailers such as Wal-Mart and Tesco, and other initiatives to lower the carbon footprint, packaging design is in a constant state of change. New packaging designs must also take into account the ability of the manufacturing sites to handle the new designs. There are conveyance issues, filling issues, and coding and labeling issues, just to name a few. Packaging materials technology continues to evolve at a break-neck pace, further adding to the complexity and rapid change.Knowledge management played a major role in enabling Unilever to realize such benefits across the end-to-end package design process. The net result of this changing culture was that Unilever was named Wal-Mart’s 2007 supplier of the year for sustainable engagement and Tesco’s international supplier of the year for the second year running.
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