Many organizations in the consumer packaged goods (CPG) industry are experiencing a trade-off between the benefit of high product volume sales coming at the expense of extreme data complexity. At the same time, these companies struggle to maintain open lines of communication with their retail customers and distributors in order to better manage the upstream flow of product.
The main challenge however, is that these issues are no longer specific to the IT department. Line-of-business managers in marketing, sales, manufacturing and procurement — to name a few — are now forced to drive tangible business value from this quagmire of data and generate a healthy flow of information throughout the value chain. In the face of these challenges, many CPG organizations are gravitating toward business intelligence (BI) tools to help create those supply chain linkages and deliver product more efficiently.
Aberdeen’s April 2009 Benchmark Report, “Moving Past Spreadsheets: What You Need to Know About BI Deployment Strategies,” demonstrated that 40 percent of companies in the CPG industry are driven toward BI technology in order to address their need to improve speed of access to relevant business data. This Aberdeen Sector Insight examines companies in the CPG industry to determine how these organizations are driving BI into the hands of more business managers in order to better manage fluctuating product demand.
The Value of Timely Information
Customer service is a crucial element of every business, but considering the today’s economic uncertainty, coupled with the top-heavy concentration of many retail customers, channels and distributors, CPG companies are in a precarious position with respect to their customers. Retailers are more price-sensitive than ever, and with the fierce competition inherent in the CPG world, the ability to resolve customer issues quickly — or preempt them altogether — can mean the difference between retaining and losing millions of dollars of business. CPG companies recognize the need for customer visibility and have leveraged BI tools to help to understand, instill retention practices, and grow their customer base.
With clean, relevant and timely information at their fingertips, these companies are able to address customer issues in a shorter time frame, ultimately leading to a higher degree of customer satisfaction and overall retention. The ability to access information faster and make quicker decisions based on that information is a key underpinning of improvement in several areas of the business, including customer service.
Faster Information, Better Decisions
From a business perspective, what sets CPG companies apart from other industries and enables them to provide heightened customer service is their ability to find information faster and make more timely decisions.
Aberdeen’s March 2008 Benchmark Report, “Data Management for Business Intelligence,” revealed that companies of all shapes and sizes struggle to manage an average of 15 unique data sources. Such extensive data heterogeneity can wreak havoc on the most sophisticated of IT departments and lead to incorrect or irrelevant information being delivered to the wrong people at the wrong time.
BI tools offer the ability to sift through mountains of data in order to find a single tidbit of information that can aid in decision making. The data shows that companies in the CPG industry have successfully leveraged BI to reduce time-to-information and time-to-decision.
A Foundation of Organizational Maturity
There is a definite chain of competency leading to improved business performance. Superior customer service is supported by the ability to gather and act upon information in a shortened timeframe. This improved time-to-information and decision is founded upon several areas of organizational maturity. The ability to properly leverage a BI solution goes well beyond mere features and functionality. Companies need to have a wide portfolio of technical capabilities to capture, assemble and deliver the right information to the right people at the right time. Aberdeen’s research shows that companies in the CPG industry are more organizationally mature when it comes to several areas of process, knowledge management, organization and performance measurement.
Given the complex nature of their information environments, CPG companies are more likely than firms in other industries to have developed or acquired the appropriate technical horsepower to manage the collection, assembly and delivery of information to key stakeholders. Having these defined BI skill sets helps ensure that the data is accurate and more relevant to the appropriate stakeholder. From a management standpoint, CPG companies are also more likely to have the ability to monitor use rates of the BI system. This promotes greater adoption of BI through the ability to reduce or reallocate underutilized systems.
From a technology standpoint, CPG companies also excel in their ability to leverage features and functionality in order to get information into the hands of non-technical users faster. Between order tracking, inventory management, supplier lead times, promotions management, and many other information-intensive applications, CPG companies consume an overwhelming number of reports on a regular basis. The ability to automate the generation and delivery of these reports allows companies to free up IT resources for more technically complex issues, while at the same time delivering and making valuable information pervasive to the many business users throughout the enterprise.
Beyond the IT Department
Perhaps the most notable trend emerging from Aberdeen’s data is the push to bring BI and analytical visibility into the hands of non-technical line-of-business (LoB) managers. While many employees think of BI as a strategic tool for planning, budgeting and forecasting, largely residing in the financial department, or as a tactical tool for real-time visibility into business information, the simple fact is that BI tools have grown in business applicability and improved in ease-of-use, cultivating an environment in which just about any business function from HR to procurement can find value in BI. This has been established time and again in the research. Aberdeen’s June 2009 Benchmark Report, “Pervasive BI: Six Steps to Enterprise-Wide Business Intelligence,” demonstrated that Best-in-Class companies were more likely to deliver BI to more roles within the organization as well as more LoBs across the company.
Pervasive BI is becoming a priority for more organizations across many industries, but the tie-in with the CPG world becomes evident when considering the importance and associated fragility of CPG — retail relationships. While the market downturn has had a varied impact on the CPG world — some companies have seen a predictable slowdown as disposable incomes have shrunk, while others have seen an influx of business as consumers migrate to lower-priced items — the only real certainty is uncertainty. As CPG companies look to mitigate that uncertainty to the best of their abilities, many strive to create information linkages to their retail counterparts in order to better manage fluctuating demand and nurture their retail customer relationships. On the other side of the fence, retail companies are following suit by leveraging BI and analytical tools for better visibility into supplier activity. Aberdeen’s November 2008 Benchmark Report, “Increasing Retail Productivity: Enterprise-Wide Business Intelligence,” showed that the top-performing retail organizations were far more likely than all others to exploit their analytical strategy to help create supplier and back-office information linkages.
With the appropriate usage of tools like BI, the vaunted ideal of open communication and information exchange between CPG and retail companies is no longer a pipe dream. For their part, CPG companies are also working to leverage a pervasive BI strategy to bring analytical visibility across the fence and into their retail partners. The February 2009 benchmark report, “Collaborative Business Intelligence: Three Steps Toward Superior Customer Responsiveness,” showed that 38 percent of CPG companies were already working toward a collaborative effort with their suppliers and customers to deliver BI capabilities across their value chain.
The Challenge of Market Volatility
The outlook for the CPG industry, however, is not entirely rosy. As mentioned previously, while some companies experience a counter-cyclicality in their business, wherein sales actually improve during an economic downturn, the majority are negatively affected by the volatility in the market. Fluctuating energy costs, exchange rates, and shipping costs can wreak havoc on these companies.
If the overall goal is to generate sustainable profitability and revenue growth, the various elements of information management discussed previously are crucial steps on the road, but they typically aren’t the end game themselves.
Competing in an industry that sorely needs the business visibility and analytical capability that BI tools deliver, CPG companies are becoming more mature and sophisticated in their information management strategy. Despite flat or declining top- and bottom-line business performance, many CPG companies have assembled the necessary components of success with a proper BI implementation.
Michael Locke is a research analyst in business intelligence at the Aberdeen Group.