INTELLIGENT ENTERPRISE
Market conditions are shaping
the future operating model for
the consumer goods industry’s
enterprise processes
Tarun Jit Singh Chopra
GBS Expert and Vice President,
Reengineering
Gaurav Kumar Agrawal
Assistant Vice President,
Product Innovation and Marketing
Executive summary
Today, the consumer goods sector faces significant challenges, including increasing
input cost volatility, strained supply chains, organizational transformation for
growth in emerging markets, and the proliferation of channels. These challenges
identify the competitive battlegrounds of the future, and to tackle them and reap
the related opportunities, consumer goods companies have for some time explored
a deeper transformation of their business models. These changes will likely need to
be accompanied by an evolution in companies’ existing operating models, as seen in
the transformation of functions, such as high-end data analysis, judgment-intensive
functions, such as sourcing support, and even aspects of Integrated Business
Planning (IBP).
Global Business Services (GBS), the evolution of shared services with a larger global
footprint serving multiple functions, helps streamline processes by leveraging a unified—
although not always centralized—operating entity, that collaborates effectively with the
rest of the function. GBS serves as a cornerstone for any advanced target operating model
and can orchestrate different sourcing structures - including those that are captive or
outsourced. Decoupling business functions (combined with the advanced use of metrics,
data-driven process management, specialized HR/organizational design, and effective
IT) industrializes operations across the process chain and can improve scalability, lower
costs, increase control, and provide a better-quality experience for the end client. If GBS is
done well, organizations can enable better decisions, pursue growth, and adapt to market
contractions more nimbly. This paper describes a scientific, granular approach enhanced
with industry-specific experiences to adopt the best-fit target operating model for the
consumer goods industry.
Consumer goods industry faces
multiple, complex challenges
The multiple business challenges facing consumer goods
companies are exposing these companies to increased volatility
and risk.
• Increasing volatile input costs. Since 2002, and contrary
to the prior 40 years, the consumer goods sector has not
outpaced the S&P 500. The industry passed on to customers
only 15% of the 40% cumulative commodity costs increase
because of price-sensitive demand. McKinsey estimates that
this effect drove 75% of the sector’s margin contraction,
which was approximately US$70 billion
• Supply-chain issues. Supplier identification and negotiations,
low cost sourcing, and shared cost analyses are making it
increasingly difficult for consumer goods companies to execute
“design to cost” products and SKUs. Moreover, strained
supply chains are often expected to ensure zero stock outs for
strategic reasons
• Accommodating growth in emerging markets. Consumer
demand in emerging markets has been consistently
outstripping consumer demand in the developed world over
the last decade, and the trend will only increase in the future.
Meeting local preferences and regulations profitably is a
significant challenge
• Pressure from competitors. Strong local players in
new geographic regions are providing established global
players with stiff competition, leading to dynamic product
development, packaging, and marketing plans
• Global surge in digital customers. Consumer goods
companies are grappling with the multiple channels that
customers are using to shop and plan store trips. It becomes
difficult to build brands and categories in a socially networked
world where tweets and FB comments can lead to negative
publicity
• Complex business models. Consumer goods companies
are operating in a complex and dynamic environment of
fragmented technology, social media, consumer trends, and
retailer consolidation, especially in the US. This necessitates
an early understanding of patterns and the improvement of
products and processes
• Outdated systems and lack of in-house analysis
capabilities. It is often difficult to support demand planning,
production, pricing, marketing, and trade promotion decisions
without scalable, in-depth data analysis expertise. Outdated
and non-interoperable systems often complicate the problem
To address these challenges, the consumer goods industry is
searching for future growth and profitability by incorporating
variable cost structures, decoupling geography-specific
processes, and conducting focused and outcome-oriented data
analysis in high-growth emerging markets.
Existing operating models often limit a company’s choices, as
legacy conflicts and inefficiencies scatter efforts, resources, and
the attention of management. Often, they limit the company’s
agility. An agile enterprise, which can respond to market trends
and implement strategic choices, can be supported, through a
scientific understanding of GBS operating models and process
performance, in serving key business functions, such as finance,
supply chain, sales, and marketing.
A solid first step for a consumer goods company is to simplify
the complex layers of local, regional, and global functions by
eliminating decision-making and production processes that have
become redundant.
Industrialized operations: the key to agility and resilience
DIRECTIONAL
% already industrialized
% industrialization potential
R&D
Procurement
9% 1%
30%
90%
10%
Industrialized Enterprise Ops
Scope and Impact
% not applicable
Opportunities do exist to industrialize supply chain processes and IT
within consumer goods while they are ahead of the pack in F&A and HR
Research support
60%
Sourcing and
procurement support
F&A
HR
Analytics
Manufacturing
0%
0%
100%
Inventory and
demand forecasting
product cost accounting
Customer Care
Industry
specific
Supply Chain/
Logistics/
Procurement
IT - ADM
Distribution
Customer care
Marketing and sales
Back-office support
General management 4%
1%
25%
5%
30%
25%
5%
70%
30%
70%
30%
50%
Source: McKinsey Research Institute, Genpact Analysis
95%
Logistics optimization
IT- Infrastructure
Contact center support
Engineering
Services/R&D
Sales and Marketing ops and
analytics support
40%
20%
All G&A support (F&A, IT, HR)
Decision and
transformation support
* includes metal products, rubber and plastics, printing and publishing
Automotive
Chemicals
Source: Genpact analysis, Everest Group GIC 2013 data
Consumer
Electronics
CPG
Industrial
Manufacturing
Others
Figure 1. Significant potential exists for industrializing operations in consumer goods companies
Industrialized operations help access new growth
opportunities, create resilience to hostile market or regulatory
conditions, and facilitate enterprise-wide product and business
model innovation. They also enable faster innovation in volatile
marketplaces.
Increasing the size of a large operation by 20% (or strengthening
business infrastructure in a new country) typically takes a year or
two, but industrialized operations can often achieve this in half
the time. When the scale of business process services is increased
by a factor of ten, the GBS model can deliver a 50% savings in
websites, e-coupons, and apps) to shape consumer purchase
behavior and build their own direct dialogue with users of
their brands. These digital interventions work very well in an
industrialized model
cost per transaction. (A leaner, more predictable cost structure
also enables resilience and the consistent global application of
best practices.)
A closer examination shows limited industrialization of analytics,
supply chain, and IT compared to many other verticals.
By Genpact estimates, adoption of analytics in industrialized
delivery models is expected to grow by 20-25% over the next five
years. There are a number of common uses:
a) Focused trade promotion management and trade
promotion optimization (TPO/TPM) using analytics can yield
better ROI and enable consumer goods companies to become
more effective trading partners with retailers. This is essential,
because the current upsurge in retailer consolidation increases
the retailers’ buying powers. (US supermarket deals year-todate are worth $6.3 billion, which is the highest since 2006
and more than the total of the prior six years, and globally, the
year-to-date deals add up to $15.3 billion.)
b) Predictive analytics help to shape and refine marketing
programs, both Above The Line (ATL) and Below The
Line (BTL), for maximum impact. Consumer goods companies
need to ensure optimum ROI across channels, brands, and
different consumer segments
c) Consumer goods companies’ use digital media (social media,
High
Figure 2 shows the consumer goods industry lagging behind
other industries, such as life sciences, capital markets, technology,
and chemicals, in the adoption of industrialized operating
models, such as shared services and outsourcing. However, as
Figure 3 represents, the industry is expected to witness one of the
fastest growths in industrialized operations.
Source: Genpact analysis
Engineering & Construction
Utilities
CPG
Healthcare providers
Oil and Gas
Retail
Life Sciences
Hi-Tech
Freight and logistics
Government
Below average
adoption of GBS
Low
Automotive
Industrial manufacturing
Extent of internal shared services
Commercial Banking
2.0
Manufacturing
1.5
Healthcare - Provider
21
Current estimated opportunity to industrialize operations (in USD billion)
Evolving through the maturity curve
GBS implementation typically follows three phases, with the
focus and achievements shifting over time from foundational
(often cost-driven) activities to more strategic ones. The full
realization of benefits for a typical company using the GBS model
Set Up
0-2 years
Reduce complexity,
drive efficiency
Capital Markets
P&C Insurance
Healthcare - Payor
Figure 3. The consumer goods industry is expected to be among
the fastest growers in industrialized operations
Chemicals
Banking
2.5
0
Information services
Telecom
Consumer Goods
0.5
Key strategic challenge
Extent of 3rd party outsourcing
Insurance
3.0
1.0
Healthcare payers
Travel & Transportation
Life Sciences
3.5
Above average
adoption of GBS
Media & Entertainment
Forecasted growth in industrialized
operations by industry (2012-2017)
4.0
% Annual rate of growth
Figures 1 reveals the significant industrialization potential
within the consumer goods industry, which so far has largely
focused on transactional F&A—though not enough—when it
comes to industrialization and inclusion in global shared services.
It also shows up to a 50% potential to industrialize G&A
support (including F&A, HR, and IT), up to 25% of Marketing
& Sales (through sales and marketing ops analytics), and up
to 30% of procurement (through sourcing and direct/indirect
procurement support). Interestingly, the scope of industrialized
operations in consumer goods is more varied than in many
other industries. Genpact estimates that a US$10.7 billion
industrialization opportunity exists in core functions of consumer
goods companies, including F&A, procurement, and supply
chain.
• Consolidate internal buy-in
• Stabilize operations (people,
process, technology), SLA
• Sharing of processes with a
cost impact of + 5-10%
• Ad-hoc solutions with
duplication of activities
between corporate and GBS
Growth
2-5 years
Operational excellence,
efficiency, variable cost
• Process optimization with
defined SLAs and KPIs
• Target global centers with
10-25% net cost savings
Maturity
5+ years
Maximize effectiveness and
continue to drive cost
• Push standardization and
advanced technology
(e.g. cloud computing) with
additional 10-15% cost
savings
• Radical expansion of scope
(functional, geographic)
• Clarify new business case
• Aggressively explore hybrid
models
High
Source: Genpact analysis, Everest Group and SSON Survey
Figure 2. The consumer goods industry can increase its agility by
improving GBS adoption to match the level of other industries
Figure 4. The full benefits of GBS are realized after the foundational
stages have been completed
2.5
All industries
Consumer goods
2.0
1.5
1.0
0.5
0.0
0-2 years
2-5 years
5-10 years
>10 years
Maturity of GBS (years)
Figure 5. Recent addition of processes to shared services will
enable leapfrogging in consumer goods GBS
will be achieved when it moves beyond the first two phases,
which can take between five and ten years.
However, forward-looking organizations have successfully
shortened the path to ROI with a well-defined target operating
model, strategy, and execution roadmap.
Figure 5 shows that consumer goods companies traditionally
lagged behind other industries in terms of the scope of
work delivered in mature shared services, be they in-house or
outsourced. However, they have recently displayed a greater
propensity to include additional, higher-touch functions in
their shared services. This renewed vigor will lead to faster than
industry average progress in attaining GBS maturity.
In addition to managing shared functions, scientific process
improvement frameworks such as Genpact’s Smart Enterprise
Processes (SEPSM) can enable consumer goods organizations to
measure and improve business processes, which in turn enables
them to be operated at world-class levels of performance and to
leap ahead on the maturity curve.
GBS increasingly includes non-commodity, higher-touch ops
Expertise/Consultative
“High Touch” Services
STRATEGIC IMPORTANCE, CUSTOMER CONTACT
Average number of processes in GBS
Source: Everest GIC database; Genpact Analysis
An example of why right operating model, strategy and
execution roadmap matters was seen when a global brewer
partnered with Genpact to setup a 500 plus FTEs financial
shared services center in Europe. Genpact helped the company
in selecting the right location and setting up facilities, setting
up HR processes, recruiting and onboarding, supporting
transition activities for eight countries and implementing overall
governance structures. Leveraging Genpact’s best practices the
customer was able to complete the setup and begin operations
within 90 days. Genpact helped the customer consolidate
20+ operating companies and 30+ reporting entities for a
35% G&A costs reduction.
PURCHASING
• Supplier evaluation
• Strategic sourcing
• Supplier negotiations
LEGAL
• Counselling
• Litigation
• Intellectual property protection
Emerging
candidates
ANALYTICS
• TPO/ TPM
• MDM, BI support
• Social media support
• Predictive analytics e.g.
marketing, S&OP
• Demand, inventory and
production planning
• Logistics and fulfilment
HR
CUSTOMER SERVICE
• Recruit, staff
• Complaint mgmt
• Train and develop
• Product support
IT
• Returns mgmt.
FINANCE
• Advanced data
• Budgeting
management
TAX
• Financial reporting
• Planning
• Management reporting
Audit
COMMUNICATIONS
• Investor relations
Expertise/Consultative
“Low Touch” Services
Finance IT
• Application
development
• Telecommunications
• Technical infra
development
Routine, FrontOffice Services
SALES OPS
• Collections
• Order entry
• Invoicing
• Tele servicing
Traditional
candidates
ACCOUNTING
• Accounts payable
• Accounts receivable
• General ledger
PURCHASING
• Fixed assets
• Purchase order
• External reporting
processing
• T&E processing
• Contract admin
• Cost accounting
HR
• Payroll processing
• Payroll/bens admin
• Expat/relo admin
TREASURY
• Cash management
• Payment processing
TAX
• Filing
• Administration
IT
• Applications
maintenance
• Data processing/
management
• Help desk
Routine, Repetitive,
Back-Office Services
COMMODITIZATION, STANDARDIZATION
Figure 6. Consumer goods shared services are expanding in scope to include non-commoditized core industry processes
For example, a major global beverage company partnered with
Genpact to streamline and standardize its business process
support in order to unlock value and achieve global economies
of scale. Utilizing the SEPSM framework, Genpact enabled the
client to consolidate global operations to five locations to drive.
In addition, Genpact unlocked US$50 million in working capital
by leveraging best practices and assisting the company in
building world-class process templates for global SAP rollout for
the standardization of global processes. The framework enabled
integrated commercial decision support and effective
governance and control, which led to profitable growth for
the company.
Higher-touch operations are also
becoming candidates for operating
model transformation
Early efforts to commoditize, standardize, and outsource
business processes focused on routine, repetitive, back-office
services, such as payroll processing, help desk operations, and
accounts payable tasks. Later, routine but low-touch promotional,
budgeting, reporting, and information technology front-office
services were added to these efforts. Now, the consumer goods
industry has outsourced key components of high end analytics,
such as TPO/TPM, MDM, BI support, social media support, and
integrated business planning and management.
A thorough analysis of the following four dimensions, as
described in Figure 7, is critical in selecting the right target
operating or delivery model.
Genpact’s experience reveals that empirical experience and a
significant level of granularity helps in crafting the right strategy
for a target operating model. Genpact recommends a structured
approach:
1. Review the as-is state and rationale. Understand the
current state of performance, identify candidates for
improvement, and review the process and sub-process
practices
2. Identify top improvement opportunities. Use best-practice
metrics and frameworks to benchmark key areas, identify
top areas for improvement, assess the feasibility and risk of
options, and conduct a preliminary analysis of benefits such as
cost, efficiency, and effectiveness
a
Boundary
conditions
What efficiency, effectiveness, risk, and standardization
are acceptable during and after transformatiom?
b
Resource
redirection
Will resources released from transaction processing and
controlled reoriented towards decision support?
c
Organisational
choices
What structure and operating model should the Finance
organization have to support the emerging business model?
d
New delivery
DNA
What new process, people practices and technologies
are required to achieve the desired objective
Some successful examples of this trend, from Genpact’s
experience, include
a) 2X improvement in trade promotional forecast accuracy for
personal and health care products
b) US$40 million savings for a top syndicated market research
company by handling big data and analytics
c) Integrating multiple data sources and creating a common
platform to easily retrieve and formulate sales and brand
strategy for a global beverage manufacturer
Thus, industrializing high-touch support operations has enabled
consumer goods companies to create operating models that can
provide agility, which is much needed in times like these.
Consumer goods companies can realize
strategic benefits through the right
target operating model
Scientific understanding of business processes—such as
SEPSM—has significantly increased, allowing organizations to
correctly estimate the end-to-end business impact of target
operating model choices, which facilitates effective design.
Still, some discovered that developing GBS capabilities was
more difficult than anticipated. This variability across scope,
location, and delivery models suggests that while broad-brush
strategies and comparables have a place in this process, each
business case is heavily dependent on the feasibility of the
operation’s DNA.
Source: Genpact experience
Figure 7. Actionable choice patterns emerge by triangulating
four themes
3. Identify delivery alternatives. Assess options for
consolidating processes into internal global shared operations,
externally sourced operations, or a combination of the two
4. Determine change implications. Outline both financial
and risk-related implications for each location and structuring
option (e.g., various types of risk)
5. Build a business case for each alternative. Compile a highlevel business case that encompasses process improvement,
organizational structuring options, location choices, and
change implications
6. Develop a detailed roll-out plan. Develop a roll-out plan to
reach the targeted operating model by process and by location
7. Build the final business case. Identify emerging options for
each process and develop financial and implementation plans
Creating a viable operating model
The consumer goods sector is undergoing a complex,
transformational change. However, input cost volatility, supply
chain challenges, and increased competition can actually offer
growth opportunities to companies that invest in new business
models.
As discussed in a previous paper, “The Adaptive Roadmap,”1
business agility in times of unprecedented volatility is an
imperative that requires a more strategic role for business
operations. In addition, embracing new operating models can
enable the creation of organizations that are not only more
resilient, but that can also compete better in times of volatility.2
This paper shared Genpact’s analysis and examples of how
leading organizations are transforming their operating models to
create a sustainable path to growth, profitability, and innovation.
1
For organizations looking to redefine their operating models,
a significant amount of specialized knowledge is needed to
navigate the continuum of design choices. In such a focused
field, strategy must leverage the experience curve of large
organizations’ journeys over the past decade. While the
operation of consumer goods companies does present challenges
unique to the industry, these companies can benefit from the
knowledge accumulated in industries in which the transformation
began earlier. Combining this knowledge with a clear
understanding of an organization’s strategic needs, capabilities,
and industry context can help in crafting the right strategy
for a target operating model. Contact Genpact’s specialists to
benefit from the company’s experience in building industrialized
operating models over the last two decades and its experience as
a leader in business processes and operations.
http://www.genpact.com/docs/resource-/the-adaptive-roadmap-whitepaper.pdf
htttp://www.genpact.com/docs/resource-/innovation_and_industrialized_business_operations_an_industry_specific_view.pdf?sfvrsn=4
2
About Genpact
About the author
Genpact Limited (NYSE: G) is a global leader in transforming and running business
processes and operations, including those that are complex and industryspecific. Our mission is to help clients become more competitive by making their
enterprises more intelligent, meaning more adaptive, innovative, globally effective
and connected to their own clients. Genpact stands for Generating Impact –
visible in better management of risk, regulations, costs and growth for hundreds
of long-term clients including more than 100 of the Fortune Global 500. We offer
an unbiased, agile combination of smarter processes, analytics and technology,
which limits upfront investments and enhances future adaptability. We have
60,000+ employees in 24 countries with key management and corporate offices
in New York City. Behind our single-minded passion for process and operational
excellence is the Lean and Six Sigma heritage of a former General Electric division
that has served GE businesses for more than 15 years.
Tarun Jit Singh Chopra has over 12+ years’ experience in Global Business
Services setup, optimization and managing operations for clients in consumer
goods, retail, life sciences and manufacturing across F&A and procurement areas
For more information, visit www.genpact.com. Follow Genpact on Twitter,
Facebook and LinkedIn.
© 2013 Copyright Genpact. All Rights Reserved.
Gaurav Kumar Agrawal has over 8+ years’ experience in shared services
advisory, product innovation and marketing roles.
For more information, contact:
[email protected]
Visit us at:
http://www.genpact.com/gbs