By: David McCarty, CPG Industry Executive Consultant
Before entering the current environment of compounding inflation, the global economy was already fighting significant headwinds spurned by the COVID pandemic. Unprecedented supply chain disruptions, frequent stockouts on essential staples, and unpredictable delivery estimates left consumers without the products they depend on.
Despite unimaginable challenges, leading retailers have remained resilient and innovative in an effort to protect consumer demand. For example, maintaining and even growing popular shopper services that thrived during the pandemic like drive-up, buy-online, and pick-up in-store, and even streamlining ordering through mobile apps.
These changes in consumer buying behaviors have created interesting dynamics and challenges which are now being compounded by inflation. The question we’re hearing from customers is how do you provide new options and capabilities to consumers in a price-effective manner?
Evolving demand drivers also come into play when we look at younger generations. Gen Z is all about values, sustainability, and environmental issues. Yet, a quote I heard recently because of inflation, consumers are valuing value more than values. So, then the question becomes: how do we balance providing consumers with sustainable options (like locally sourced products) in an affordable way?
From both the Consumer Packaged Goods (CPG) and Retail perspectives, brands have witnessed eroding brand loyalty. During peak supply chain disruptions, consumers were forced to switch brands depending on what was left on the shelf. Unfortunately, some brands saw those preferences stick — with increased inflation and an emphasis on value, consumers going down market in their selections solidified even more.
As part of a roundtable discussion, Anaplan and CPG stakeholders discussed rising inflation, how transformative planning can maximize revenue growth, and what's possible with agile planning & solution development in the CPG market.
While there were some similar perspectives shared in comparison to our first roundtable discussion, the three key themes that emerged were:
Collaboration across departments to plan in real-time
Ability to scenario plan to take advantage of market opportunities
Relentless SKU rationalization to optimize product mix
1. Collaboration Across Departments to Plan in Real-Time
CPGs who have figured out ways to plan across different functions collaboratively using a technology platform like Anaplan has benefitted immensely. A common thread we heard from companies operating collaboratively was the ability to have cross-functional discussions and decision-making as it relates to price changes. For instance, when the supply chain team is involved in pricing decisions and is aware of promotional plans, it provides more visibility into incremental spikes in demand so they aren’t blindsided.
For many CPG companies, it’s imperative to have a cohesive and real-time Commercial Plan. With the added visibility, every decision made upstream can be seen downstream. The ability to seamlessly connect any decisions made on trade with demand planners helps reduce out-of-stock, plus improves planning speed, instant access, and routing of approval. If a company needs to make a price adjustment due to sourcing, logistical or production costs going up, better collaboration can take place across Finance, Sales, and Demand Planning teams if there is one overarching plan in place. The ability to see the data and look at each function’s plans helps to understand how a change in price will impact adjacent processes.
Additionally, collaboration allows companies to react more quickly in a more agile fashion when an unexpected disruption hits at any point in the value chain. With many supply constraints happening over the last few years, building trust and working across teams really helps with making confident decisions. There is less time debating between functions if the numbers are accurate and agreed upon and instead, the team can focus on the actions to take to drive the business. In other words, Anaplan helps bring together siloed business units with standard data and data definitions across the organization.
2. Ability to Scenario Plan to Take Advantage of Market Opportunities
With marketplace dynamics changing drastically, companies can’t rely on what worked a few years ago. To be successful, CPGs need to have new ways of thinking and ensure the right people, processes, and technology are in place to support it. We’re seeing our customers now have the ability to run different scenarios based on statistical analysis and more granular data that was previously unattainable. They can closely look at 2-3 different ways to approach a challenge and then explicitly call out what they’re betting on. Having a platform like Anaplan to decide where to place a bet allows leaders to take advantage of identified upside and decide quickly (and with confidence). This type of decision-making, and continual readjusting, is required not only in the current environment but likely going forward.
3. Relentless SKU Rationalization to Optimize Product Mix
One strategy that we’ve seen with our customers is decoupling, which is the notion of breaking price elasticity into more granular detail and attributing components to specific drivers. For example, analytically deriving the impact of inflation on demand from price moves. To do this well and with speed requires granular data and technology to assist in the analytics.
Additionally, there’s a huge interest in manufacturers trying to rationalize and optimize their product portfolios to prioritize investments. For example, one CPG company we work with has 25% fewer SKUs than 1.5 years ago. Coming from a revenue perspective, large CPGs are focusing on the right product mix and packaging architecture to help counter inflationary costs.
The importance of getting the right product mix can be seen in the trend of consumers trading down. During our roundtable discussion, Bob Debicki, Sr. Director, Global CPG & Retail at Anaplan shared one interesting example where a retail chain is actually benefiting from this trend.
“Dollar General’s business is booming right now, to the point where they are opening 3 stores a day. Since brand loyalty is eroding and value is prioritized, Dollar General’s customer base is expanding rapidly, plus they’re actually increasing the number of categories that they carry.” — Bob Debicki
Bringing Data & Decision-Making Together
As we wrapped up the roundtable discussion, what struck me was that many of the topics that were shared should be part of a robust S&OP or IBP process. While everyone agrees that almost all companies have an S&OP process on paper, the technology enablement of that process has been elusive, even over years of trying different solutions. One of the participants that have implemented Anaplan described it as the “glue” that brings the entire S&OP process together.
While each department could continue to use the point solutions relevant to their department, Anaplan can cut horizontally across the organization and bring the data and decision-making together in real-time and at a global scale. This is a really great way to articulate the vision of Connected Planning that Anaplan brings to the CPG marketplace.
Interested in learning more about how leading CPGs can plan with agility and speed in this turbulent market? Contact David McCarty at mccarty@twelvecg.com.