By: David McCarty, CPG Industry Executive Consultant
Inflation soared over the past year at its highest rate in four decades, hammering American consumers, wiping out pay raises, and reinforcing the Federal Reserve’s decision to begin raising borrowing rates across the economy.
Consumer Packaged Goods (CPG) companies find themselves in unfamiliar territory as they strive to respond to this dramatic change and balance profitability with market pressures. One wrong approach can erode loyalty and cede share to competitors. There has never been a more pressing time to innovate your organization’s planning capabilities, such as Revenue Growth Management (RGM), to win during these challenging times.
We recently hosted a CPG Executive Roundtable with Anaplan, where customer participants shared challenges, ideas, and best practices. Industry experts joined in on how organizations can holistically prepare for and react to the inflationary pressures that are impacting their consumers.
At the beginning of the session, we discussed three key observations we have made of successful CPG companies.
Winners Come in All Shapes and Sizes
The first observation is that winners come in all shapes and sizes. There are CPG companies that are driving profitable growth in all product categories and across small, medium, and large enterprises. There isn’t an excuse for failure; what matters is what you do, not who you are.
This brings us to the second observation, and that is that execution matters. In the past, many product categories were growing solely based on market trends; as long as you competed in that space you would also grow…a rising tide lifts all boats. Alternatively, many CPG companies offset flat to declining brands through inorganic growth; many small DTC brands were purchased by larger, well-established companies. But now most pies are not growing and the only way to have profitable growth is to out-execute the competition and grab a larger slice of the pie.
Transforming Ways of Working
Grabbing the larger slice of the pie requires transforming ways of working, which is our third observation. Successful CPGs are not relying on the old ways of working, but instead, they are leveraging new technology, new data sources, and new talent pools to do things more efficiently and effectively. In fact, the real winners are not just doing things better, they are doing better things.
These points are discussed more thoroughly here:
When we delved deeper into what was working for the CPG roundtable participants, two overarching themes emerged:
To make bold, confident decisions you need to have the data and analytics to support the hypothesis and execution
RGM actions require taking a more holistic approach across the entire value chain from procurement to supply chain to sales
Confidence to Make Bold Decisions
First, we touched on the difficulty of making decisions in the absence of insights, even though most companies are awash in data that is unfortunately disconnected. Additionally, the granularity of the information is at such high levels of aggregation that being able to model different scenarios at the best level of the product and customer hierarchies to aid in decision-making is out of reach.
Compounding these limitations of data is the speed with which the market can change. Consumer sentiment and consumer demand drivers can evolve and transition at a pace that a decade ago would have been unimaginable. The rapidity of these changes made it troublesome for CPG manufacturers to effectively react to inflationary pressures. For example, price elasticities have changed more rapidly over the last few years.
With the rate of change, planning outlooks need to be recalculated based on the most current elasticities, because assumptions from a few months ago are no longer valid. Another example is the impact on inventory due to the volatility of demand. While out-of-stocks are often the most visible result, most companies don’t have the means to adjust their promotional strategies to effectively shape demand to improve inventory positions and instead are forced to take cost-cutting measures, which can compound the issue.
These challenges create an environment where business leaders have to simultaneously deal with an unpredictable marketplace and suboptimal data to drive insights. This leads to difficulty in making confident decisions at the timing and frequency that the business demands — How do you have the confidence to make that bold move? Older analytic solutions are not dynamic enough to deal with the rate of change and take lots of time and resources to remodel to the level of detail to build confidence.
A common characteristic of roundtable participants who had successfully addressed the rapidly changing marketplace was utilizing an analytic and planning platform to support confident decision-making. This platform allowed users to rapidly model changes in the marketplace and develop winning strategies and scenarios. They were able to make confident decisions based on data versus educated guesses, plus provide key stakeholders with concrete plans to react to and execute upon.
A Holistic Approach to Revenue Growth Management Actions
A second theme that emerged was the evolution to more holistic approaches to decision-making. For example, in the past, pricing decisions were often made by the RGM or brand teams without consideration of the impact on the supply chain. While most companies have an S&OP or IBP process in place, it often is not dynamic and agile enough to address the evolving market conditions discussed above.
Over the past 2+ years, we have seen major challenges across the entire value chain; from sourcing raw materials all the way to last-mile distribution to the shelf. For many organizations, it has been like dealing with a riptide of supply and demand issues. Many roundtable participants discussed making hard decisions around SKU rationalization and looking at not only SKU value in the eyes of a consumer, but also in terms of production and distribution resources required to maintain that SKU in the marketplace.
Previously, a small, passionate base of consumers could keep a certain SKU in production, but now the overall costs need to be considered. Several participants discussed the reduction of “Zombie SKUs” from a portfolio to improve the economies of scale for other products.
CPG leaders who believed they were winning in the inflationary period marketplace clearly articulated that they are rebuilding their S&OP and RGM processes to be broader in scope and include more stakeholders across the enterprise. Additionally, many felt their analytic platform allowed them to analyze multiple scenarios, execute changes ahead of their competition, and provided an edge in the marketplace. The ability to be proactive versus reactive was viewed as a huge competitive advantage.
Creating a Competitive Advantage
Based on the comments and observations made across the roundtable, technology is clearly an enabler of success. Key capabilities of analytic platforms that were discussed included utilizing a planning platform with granular data, having the ability to do detailed scenarios, and implementing processes that connect stakeholders across the enterprise. Access to an advanced analytics and planning platform allowed organizations to make faster and more confident decisions in pricing and promotions. These decisions allowed leaders to be proactive and leapfrog their peers to gain a competitive advantage.
If you would like to learn more about how leading CPGs are using Anaplan to plan with agility and speed to make confident, bold decisions, reach out to David McCarty at email@example.com.
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