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publisher
Albert Guffanti
[email protected]
edit note
Welcome to the 2014 Tech Trends Report, produced by CGT and our valued
research partner, Gartner, Inc. This year, the report tells the consumer goods
industry’s coming of age story. IT spending is stagnant, but the dollars that
consumer goods companies do have are being allocated to the right areas in
order to nurture aggressive growth initiatives. Deeper analytics, stronger visibility and enhanced decision-making capabilities, all
enabled by smarter technology choices, are propelling organizations to reach heightened levels of maturity. Together, we’ve selected seven topics that must
be evaluated as change initiatives within an organization’s maturity progression. Survey results benchmark
your process and technology maturity levels against
industry averages, while Gartner analysts offer strategic advice and predictions for accelerating your orga-
kara romanow
Executive Editor
nization’s transformation into a stronger more capable
competitor. Enjoy!
contents
04
12
16
20
24
26
30
IT Spending
Supply Chain Analytics
The Product Portfolio
S&OP Technology
Digital Marketing
Supply Chain Visibility
editorial
Executive Editor: Kara Romanow
[email protected]
Editor: Ali Ackerman Orr
[email protected]
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IT Spending Overview
Budgets Remain Flat, But Spending Changes to Fit Transformation Goals
By Jan Koh ler, G artn er Su pply C ha i n R e s e a r c h D i r e c t o r
The consumer goods industry still strives for growth and
productivity in an environment of continued volatile demand
and expanding portfolios. With more options to choose from,
demand is spread thinner across the larger number of possible
selections and brand loyalty is not what it used to be. Consumers continue their cautious and frugal buying habits from
the economic downturn but are now more influenced by the
increase in digital technology and online options. And, now,
growth in emerging markets is slowing down. Through all of
this, leading consumer products companies are transforming
their supply chains to support revenue growth goals while
reducing cost. They are looking to technology to support them
on this journey with greater visibility, stronger data analytics
and better decision-making capability. For example, Unilever is
well underway in achieving its goal of doubling revenues and
halving its environmental footprint in this decade. The Procter
& Gamble Company is hard at work leveraging its scale while
figur e 1 : Expected Change in Supply Chain
Management Investments
BY YEAR - EN D 2014
12%
5%
11%
43%
Expect significant decrease
No change
Expect slight increase
Expect significant increase
10%
35%
8%
Expect significant decrease
Expect slight decrease
No change
Expect slight increase
43%
Expect significant increase
Source: Gartner, Inc.
TT4
1
IT spend remains flat, but budget increases are expected over
time. Industry average IT spending as a percent of revenue
in the consumer products vertical for the past several years
has hovered right around 2% with 2013 coming in at 1.9%. Cur-
f i g u r e 2:
IT Spending Breakdown Forecast
Total Growth
5
11 Services
Internal
30
43
12 Software
2015
| c g t | T e c h T r e n d s R e p o rt 2 0 1 4
Telecom Services
4
10 Center
Data
8
43
35Devices
2016
3.28%
3.77%
1.57%
1.9%
8.95%
8.78%
3.98%
4.42%
External IT Services
BY YEAR- EN D 2017
4%
The 2014 Tech Trends Report reveals three
key themes:
AREA OF SPEND
Expect slight decrease
30%
improving its capability to orchestrate its end-to-end trading
networks and redesigning its U.S. distribution network as part
of its “one face to the customer” initiative. And The Coca-Cola
Company’s growth agenda is all about delivering profitable
top-line growth as part of its “2020” vision while managing
complexity across its network. These examples show that
despite challenging times, consumer goods leaders are consciously forging ahead to become stronger and more capable
in supporting their impressive growth goals.
0.84%
1.81%
2.52%
2.39%
0.90%
1.66%
Source: Gartner Worldwide Verticals Forecast
– 2014 Q2 Update, Consumer Goods Vertical
IT Spending
rent Gartner projections expect 2014 to remain the same. Results from this
year’s technology study revealed that just more than half of those surveyed
expected a slight or significant increase in spending for this year and expect
that increase to grow to 78% by 2017 (see Figure 1). Though the budgets are
forecast to remain flat as a percent of revenue, dollar spend is expected to
increase slightly over the next few years in several areas (see Figure 2). Software is projected to have the largest increase followed by external IT services.
f i g u r e 3: Supply Chain Technology
Adoption Profile
ADOPTION PROFILE
9%
2
Conservative
45%
Source: Gartner, Inc.
Supply Chain Management Application Selection Criteria
1st most important
C RI TERI O N
Functionality
38%
Total cost of ownership
14%
ROI or payback period
15%
Integration with other applications
13%
Services, support and maintenance
3% 6%
Technical architecture
Application platform
Vendor innovation/thought leadership
4%
6%
18%
12%
14%
13%
19%
22%
11%
12%
2% 5% 5%
3%2% 4% 4%
Systems integrator ecosystem
3% 4%
1% 1%
22%
11%
4% 7%
Application deployment model
| c g t | T e c h T r e n d s R e p o rt 2 0 1 4
2nd most important
3rd most important
16%
7%
Source: Gartner, Inc.
TT6
Mainstream
46%
Supply chain technology adoption trends continue. Technology adoption
profiles have not changed since 2010. Per Gartner’s recent technology
study, most companies continue to fall in the conservative (proven
technology only) and mainstream (maturing technology with manageable
risk) profile for supply chain applications and technologies (see Figure 3).
Emphasis on internal transformation drives consumer goods companies to
balance risk with opportunity from technology and applications to support
figur e 4 :
Aggressive
6%
12%
13%
15%
13%
0%
4th most important
12%
IT Spending
their vision. The projected increase in external IT
services spending, which includes product support, consulting and implementation services,
could be the cushion needed to minimize risk.
This study also revealed that functionality is the
most important supply chain management application selection criteria followed by cost, ROI
and ease of integration (see Figure 4). We see that
technical architecture and vendor innovation/
thought leadership come in as lower priority.
This is consistent with the mainstream and conservative adoption profiles. When the focus is on
transforming and growing the business these two
criteria may need to rise in importance over time.
3
Investment decisions are expected to change
over the next few years. The results of the
technology study show more money is expected to be spent on transforming and growing
the business and less on just running the business as it is today (see Figure 5). This is consistent
with the transformation journeys and impressive
growth goals we see in place with the consumer
goods leaders. Visibility tops the list of most
important key supply chain initiatives planned
for the next 12 months followed closely by enhanced business intelligence. This is expected in
the world of uncertainty that consumer goods
companies face. Integrated Business Planning
(IBP) or advanced Sales & Operations Planning
(S&OP) comes in third. Companies that successfully reached Stage 3 S&OP maturity are beginning to use the process as a decision-making
forum to deliver on their business strategy and
achieve their financial goals. At this stage, they
need more advanced technology to support
what-if scenario modeling and interactive decision support. Key investment drivers for supply
chain focus on reducing operating and support
costs (see Figure 6). In support of transformation, it
is not unexpected that adding or upgrading functionality and increasing flexibility and adaptability of existing applications are high on the list.
Managing technology investments to support
transformations will be critical in supporting
business growth goals for the rest of the decade.
TT8
| c g t | T e c h T r e n d s R e p o rt 2 0 1 4
f i g u r e 5: Expected Change in Supply Chain IT
Budget Allocation
FY 2013
BY FY 2017
17%
62%
24%
21%
Grow The Business
48%
Run the Business
28%
f i g u r e 6:
Transform the Business
Source: Gartner, Inc.
Key Investment Drivers in Supply Chain
Note: Multiple responses allowed
DRIVER
61%
Reduce operating and support costs
17
24
21 Add new functionality 28
61
48
55%
53%
Upgrade existing functionality
Insufficient flexibility and adaptability
in current applications
46%
39%
Change in business requirements
33%
Need for better user experience
31%
Technical obsolescence
Need to focus more on
transformational investments
27%
Application portfolio rationalization
and consolidation
25%
17%
Change in application deployment model
Other
6%
Source: Gartner, Inc.
FROM THE FRONT LINES
Q:
CGT asked…
How should consumer goods companies
spend the lion’s share of their discretionary
IT budgets over the next 12-14 months?
Jon Harding
Global CIO,
Conair
“The lion’s share
of discretionary
IT spending in
2014-15 should
be spent on big
data projects to enable
the business to take advantage of
all the revenue growth, customer
retention, customer engagement
and digital path-to-purchase opportunities that the new technology
revolution is making possible for
the first time. By ‘big data’ I mean
all types of analytics on all sources
of external and internal data about
the business.”
Steve
Sigrist
VP Customer
Development
Operations,
Newell
Rubbermaid
“I suggest the spend
to be for systems for
supporting the rapid deployment of
omnichannel solutions and relation
business evaluation tools. Utilize
funds to unlock the power within
the existing distribution network
systems as well as to quickly enhance and enable consumer packaged goods firms to be stronger
omnichannel support to retailers.”
TT10
| c g t | T e c h T r e n d s R e p o rt 2 0 1 4
A:
Consumer goods IT
and business leaders
answered…
Scott
Hendrick
Richard
Davis
SVP, Chief
Transformation
Officer &
CIO, Scotts
Miracle-Gro
“Consumer goods
companies should consider balancing discretionary spend in two
areas: Growth and Information
Security. In both cases, because
technology and business models in
most sectors continue to evolve, if
a company does not proactively focus in these areas, they are at risk of
losing market share or relevancy.”
Jerry
Wolfe
CIO,
McCormick
& Company
“They should
focus on collaborating with
commercial teams to
create services that support growth
— analytics, digital shopper marketing solutions, support for the
consumer information transparency initiative (CITI).”
VP,
Business
Planning,
Kellogg
Company
“As technologies
around big data and
predictive analytics start to become
more robust and defined, and clear
technology leaders emerge, I would
expect successful companies
would begin to leverage them and
invest more discretionary funding
in these areas, as we all seek to become more insight driven.”
Dan
Woo
Director of
E-Business,
Nestlé USA
“I believe consumer goods
companies should
prioritize IT investments in consumer and customer
insights to enable top-line growth.
If you think about delivering value,
the operational costs should be
minimized and the impact to sales
growth should be maximized.”
Supply Chain Analytics
Why Analytics is now a requirement to compete in consumer goods
By Noha Toham y, G artn er Su pply C h a i n R e s e a r c h V i c e P r e s i d e n t
Supply chain strategists as well as heads of supply chain centers of excellence are tasked with
a non-trivial charter: build an analytics competency that can support the current and future
needs of the supply chain. This goal is becoming
more and more imminent with the advent of the
digital business.
A recent Gartner study examined the current needs for supply chain analytics, and the
future plans for additional investments to satisfy
those needs. The study was conducted with 449
respondents in various supply chain roles, spanning numerous industries, including high tech,
consumer products, chemicals and industrial
manufacturing.
When asked about the importance of different
supply chain initiatives to the organization in the
next year, companies chose building end-to-end
visibility and enhancing decision making with
analytics as the top two initiatives (see Figure 7).
f i g u r e 7: Importance of Initiatives to the
Supply Chain Organization
i n iti ative
m ean
Facilitating improved supply chain visibility and transparency
5.7
Enhancing decision making with business intelligence and analytics
5.6
Integrated business planning
5.4
Compliance with government mandated regulations
5.1
Supply chain/network redesign
4.9
Globalization initiatives
4.6
SKU rationalization
4.4
Supply chain segmentation programs
4.3
Supplier rationalization
4.3
Strategically outsourcing processes and activities to third parties
4.2
“When making investments,
supply chain strategists should
pursue cross-functional analytics
that will ultimately improve endto-end supply chain performance.”
TT12
| c g t | T e c h T r e n d s R e p o rt 2 0 1 4
Source: Gartner, Inc.
Supply Chain Analytics
figur e 8 :
Investment in Analytics Applications
Note: Multiple responses allowed
A PPLI C ATI O N
50.4%
Supply Chain Performance Management
Demand Planning
41.4%
Inventory Optimization
41.4%
38.3%
Sales & Operations Planning
36.1%
Supply Chain Visibility
32.3%
Production Planning and Scheduling
Product and Distribution Planning
Network Design
Supply Chain Risk Management
Pricing Optimization
18%
15%
13.5%
11.3%
Source: Gartner, Inc.
Furthermore, analytics is the most important investment that companies will
make in the next three years.
This emphasis on analytics is not unexpected. With a deluge of data from
both inside and outside the enterprise, with demand for faster response time
to customer requests and with limited pool of analytics skillsets, analytics has
become a requirement for most companies to remain competitive.
When making investments, supply chain strategists should pursue crossfunctional analytics that will ultimately improve end-to-end supply chain
performance. Supply chain strategists should also guide the business in
identifying the most critical needs. For example, while some business users
might be currently enamored with advanced big data analytics, the most
critical need for the business might be leveraging analytics for end-to-end
supply chain reporting and visibility (see Figure 8).
A willingness to deploy analytics solutions in the cloud will boost the
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| c g t | T e c h T r e n d s R e p o rt 2 0 1 4
software-as-a-service analytics market, and 58%
of the survey respondents have moved or are
likely to move their analytics and performance
management applications to the cloud. With
decreasing security concerns, increasing awareness of the benefits of a cloud solution in terms
of speed of implementation and less50.4
reliance on
scarce IT resources, companies’ willingness to
move supply chain applications to the
cloud will
41.4
continue to grow.
Supply chain strategists must understand
41.4
their company’s overall cloud strategy and
choose the supply chain analytics solutions ac38.3
cordingly. They need to work with current
analytics vendors to understand their cloud capabilities and strategy for future capabilities.
36.1
Meanwhile, dissatisfaction with embedded
analytics in supply chain management
(SCM)
32.3
tools will drive supply chain organizations to
invest in more end-to-end capabilities. The ma18
jority of respondents (71%) indicate that there
needs to be more analytics capabilities embedded
15
in their supply chain management application.
Furthermore, only 12% of the respondents said
that they are fully utilizing the analytics
13.5functionality in their SCM tools.
One explanation for this underutilization
is
11.3
that as companies mature, they look for analytics solutions to manage the overall supply chain
performance. Currently, most SCM tools now
offer analytics aligned with one functional area,
making it challenging to provide the company
with the ability to analyze and make the right
trade-offs across the extended supply chain.
Supply chain strategists must investigate
the reasons for the underutilization of current
analytical capabilities in SCM tools. Is it due to
limitations in the tools or due to user resistance
and the need for change management? If it is
the latter, realize that additional investments in
analytics applications will unlikely provide additional value unless the required change management is conducted to ensure user buy-in or
further automation. And, when investing in new
analytics solutions, focus on the tools’ ability to
offer end-to-end supply chain capabilities.
0
10
20
30
The Product Portfolio
Eliminating Underperforming Items to Make Way for New Products
By Janet Sules ki , Su pply C hai n R es e a r c h D i r e c t o r , G a rt n e r , I n c .
Consumer goods companies excel at identifying market opportunities and creating new
products or revising existing products to attack
those opportunities. Those same companies,
however, often struggle with slimming down
product portfolios to focus on the most valuable items and make room for innovative new
products. As product portfolios grow, supply
chain complexity increases and the impact is
felt in inventory, cost and service levels. Bloated
portfolios also generate very real lack of capacity in product development, marketing, sales
and supply chain teams to support new products; they are too busy sustaining the existing
ones. With CEOs prioritizing innovation to
drive business growth (see Figure 9), the reality of resource and asset constraints is forcing
companies to make hard trade-off decisions
between the risk of trimming products out to
make room for new ones and the risk that failure to do so will threaten the financial health
of the company.
What’s needed is a scalable, repeatable, disciplined product phase-out process. Similar to
the way that consumer goods companies have
improved the alignment of new product development processes to merchandising, inventory
and operations execution activities to improve
the success rate of new product launches, companies are looking at how to align resources for
deciding which products are failing to meet
financial and strategic metrics. This decision is
step one of a two-step process.
The second step, one that companies that
excel at the decision-making step may or may
not do well, is executing the product phase out.
Failure to execute the phase-out causes products to linger well after a company knows they
should be retired. Emotions come into play as
teams or individuals rally to support favorite
products and salespeople resist the loss of revenue from discontinuing the product. Some
companies have struggled to reduce portfolios
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| c g t | T e c h T r e n d s R e p o rt 2 0 1 4
f i g u r e 9:
The CEO’s Top Strategic Business Priorities
S t r ategic P r i o r it y
TOP
S EC ON D THIRD
Growth
38% 15% 10%
Cost Management
8%
11% 6%
IT-Related
6%
10% 7%
Profit Improvement
5%
8%
9%
Workforce
2%
2%
10%
Product Improvements
5%
4%
4%
Customer
4%
3%
5%
Efficiency and Productivity
1%
7%
3%
Financial
2%
3%
5%
Innovation, R&D
4%
4%
2%
Governance, Risk and Compliance
1%
4%
3%
Culture Change
1%
3%
4%
Quality Improvement
1%
5%
1%
Source: Gartner, Inc.
“As product portfolios grow, supply chain
complexity increases and the impact is felt
in inventory, cost and service levels.”
The Product Portfolio
only to see them rise again and sometimes even exceed the
previous size. Product discontinuation decisions need to take
emotion out of the process, look quantitatively at the value the
item is creating for the company, and choose whether it should
stay, be discontinued, or undergo a “renovation” process to try
to get the item healthy again (see Figure 10). Best practice is to
measure a product’s health against multiple criteria, including
product economics, complexity impact, strategic importance
and item substitutability, before making a decision. Following stage gate processes to manage timing, raw and finished
goods draw-down, and final disposal and setting timetables
for consistent execution, help companies scale and repeat the
process across portfolios.
Establishing the importance of active portfolio management that includes rigorous product phase-out planning
and execution is the first step, and usually requires C-level
sponsorship. Building consensus about the right metrics to
figur e 1 0 :
measure product health takes time, and the decision to test
products against proposed health scorecards requires the
support of upper management. With proposed metrics in
place, most companies undertake an initial round of data
collection, which can take a considerable amount of time and
effort. Successful companies pilot the proposed phase-out
process from beginning to end on as few as five products to
fine tune it before rolling out to other products. Ownership of
the discontinue decision sometimes shift as companies seek
to reduce the amount of bias and emotion that may arise in
early rounds. And, although it can be hard to find time to do
this, conducting post-phase-out reviews to identify improvement opportunities is essential to continuous improvement.
Get executive buy-in, start small and be prepared to tweak
the phase-out process, one that growing numbers of consumer goods companies are realizing is just as important
to portfolio health as the new product introduction process.
Product Phase-Out Decision Tree Example Discontinue
No
Healthy?
decisi o n
c r ite r i a
decision
crite ria
Refresh
Source: Gartner, Inc.
Phase-Out
New Formula/
Design
New Packaging
New
Advertising
Yes
TT18
| c g t | T e c h T r e n d s R e p o rt 2 0 1 4
Keep
Pricing/Trade
Funds
Monitor and
Re-evaluate
S&OP Technology
How process maturity should impact technology adoption
By Tim Payn e, G artn er Su pply C hai n R e s e a r c h V i c e P r e s i d e n t
It is imperative to understand your company’s definition of
S&OP before looking at the different technology options to support your versions of the process. A useful way to think about
your specific definition of S&OP is to think about the maturity
stages of a typical S&OP process. These maturity stages represent the key “milestones” that a process would go through
from being a more locally deployed, simple process to one that
is more broadly implemented, more sophisticated and delivering more value to the organization. As can be expected, the
type of technology required to support a lower stage process
is not going to be the same as the technology that is required to
support a higher stage process. This is certainly true of S&OP.
Also, a company does not want to implement technology to
support early stages of maturity only to rip this out when it is
ready to move to higher stages. There should be a layering of
technology to support the business as it moves along its S&OP
maturity journey (see Figure 12). This idea of process maturity
and technology layering is useful to help focus in on what type
of technology and associated capabilities are really needed at
each maturity stage and to ensure that when we look at the
market we are comparing “apples with apples”.
Operational planning solutions (aka supply chain planning
solutions) and some form of presentation capability typically
enable lower stages of S&OP maturity. Up to mid-maturity
S&OP, a company will typically focus on getting a demand/
supply balance across its internal supply chain over a more
tactical time horizon. Once it is ready to move on, then S&OP
needs to be more strategic in nature, have a longer time horizon,
be more broadly deployed internally and externally, have a
stronger scenario planning dimension, and be more financial
and business planning-oriented. These later requirements need
additional technology support, such as:
1.Collaboration Support – S&OP is highly collaborative and
takes on an external dimension as maturity increases.
2.Hierarchy Management – The ability to flexibly aggregate/
disaggregate into groups that make sense to different parts
of the business along with the ability to translate between
units of measure.
3.Process Management – S&OP is a process after all, and needs
to be managed as such.
4. Supply Chain Modeling – As maturity increases, S&OP becomes an exercise in scenarios, and modeling capability is
required to help generate these scenarios.
TT20
| c g t | T e c h T r e n d s R e p o rt 2 0 1 4
5. Scenario Management – Socializing, versioning, controlling
and approving scenarios is key.
6. Financial Impact Analysis – The financial evaluation of plans and
scenarios is increasingly important as S&OP maturity rises.
7. Performance Management – Good dashboarding, scorecarding and root-cause analysis becomes important.
8. Project Planning – Not a high-level requirement yet, but as
S&OP matures, some basic ability to manage key projects
(new product launch, new capacity) becomes important.
The architecture of the S&OP solution must “play nicely”
with the operational planning solutions; the data it requires
resides in the operational planning layer and the decisions it
produces need to be passed back to be operationalized in the
supply chain planning layer. This speaks to the necessary layering effect of the different technology components.
As can be seen in Figure 11, many obstacles that impede the
S&OP journeys have a technology dimension to them. These
challenges can be significantly diminished if the planning
technology roadmap is built up in appropriate “layers” to
ensure the right enablement is in place for the S&OP process
as it increases in maturity.
f i g u r e 11:
Top S&OP Challenges Note: Top Rank Only
CHALLENGE
Connecting the S&OP plan and decisions
to the operational plan/execution
21%
Data availability, integrity and
stakeholders agreement
13%
11%
Implementing a global S&OP process
Move from demand and supply matching
to engaging profitability as a key goal
Connect strategic initiatives
to the S&OP process
Recording volume and financial plans
10%
8%
6%
Source: Gartner S&OP Maturity Study, 2013
S&OP Technology
figur e 1 2 :
5-Stage S&OP Maturity Model
Stage 1: React
Stage 2: Anticipate
Stage 3: Integrate
Stage 4: Collaborate
Stage 5: Orchestrate
Outcome
Preventing supply
shortages and
maximizing revenue.
Creating a volumebased operational plan,
using sales forecast
and constrained supply
capability.
Balancing supply and
demand volume across
the end-to-end supply
chain and establishing
stronger cost-based
financial and supply
chain alignment.
Creating a demanddriven, profitable supply
response across the
extended supply chain.
Coordinated decision
making across the
enterprise and network
to create value across
the full planning horizon.
Process
Focus
“S” reflects sales; “OP”
reflects local supply
capabilities.
“S” reflects sales and
marketing plans; “OP”
reflects supply plans.
“S” equals sales and
marketing plans, with
input from supply chain
group; “OP” represents
integrated supply chain
capabilities across plan,
source, make, deliver.
“S” expands to reflect
go-to-market plans;“OP”
reflects extended supply
chain capabilities for
profitable response.
“S” reflects network
strategies and solutions,
aimed at creating new
value; “OP” reflects
orchestrated network
strategies to fulfill
demand.
Organization
The S&OP process is
led by supply chain and
lacks sponsorship from
business executives.
The S&OP process is
coordinated, owned and
sponsored by supply
chain.
S&OP is still owned and
sponsored by the supply
chain group, with
increasing involvement
from other functions.
The S&OP process
is coordinated by the
supply chain, but owned
and sponsored by business unit/P&L owners.
S&OP is coordinated by
supply chain or finance,
owned by P&L leaders
and sponsored by
C-level executives.
Metrics
Business unit metrics
are generated from
varied sources.
The metrics are
function-specific and
often competing.
The metrics are defined
to measure integrated
supply chain performance.
Metrics are consistent
and both internally/externally focused across
the extended supply
chain.
Metrics are value-based
and aligned across
network and enterprise
to measure trade-offs.
Time
Horizon
S&OP focus is on
firefighting to resolve
current operational
imbalances in supply
and demand.
S&OP is mostly shortterm and operationally
focused (e.g., zero to
three months).
S&OP seeks to expand
its focus to the mid-term
planning horizon, beyond the current quarter
with mixed results.
S&OP process covers the three- to
12/18/24-month term,
depending on the
industry.
S&OP manages longterm trade-offs in the
two- to five-year time
horizon.
Technology
Extensive, but inconsistent, use of spreadsheets and in-house
systems to support
S&OP and disparate
transactional systems.
Transactional systems
become the system of
record for the S&OP
process, with limited
functional solutions
to support supply and
demand planning.
Building unified planning
platforms to support
balancing supply and
demand across the
end-to-end supply chain
and an emphasis on
the accuracy and availability of supply chain
master data.
Reliance on the supply
chain planning platform
to improve internal and
external trade-offs, with
functional capabilities
translating volume plans
into revenue and profit
projections.
Deployment of technology enables scenario
modeling to support
trade-offs and demand
shaping across time
horizons and across
network.
Source: Gartner, Inc.
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Digital Marketing
Three Ways to Build More Direct Consumer Relationships
By Don Schei ben rei f, G artn er R es ea r c h V i c e P r e s i d e n t
529,364
217
Technology is making it easier for consumer goods companies
to have more direct relationships with their end consumers. The
advent of digital marketing, complete with social and mobile
platforms, is providing consumer goods firms with even more
options to build that relationship. While there are many ways to
do this, below are three key trends we are seeing at Gartner and
confirmed by numerous interactions with our clients globally.
1. Crowdsourcing: We predict that by 2017, more than half of
consumer goods manufacturers will employ crowdsourcing
to achieve fully 75% of their consumer innovation and R&D
capabilities. We see evidence today in consumer goods companies growing use of crowdsourcing technologies for such
applications as advertising, new product development, process
improvement, packaging development and scientific problem
solving. For example, platforms such as Quirky and Betterific
can help consumer goods manufacturers tap into interested consumers — whether it is to generate new ideas or turn ideas into
products. Consumer goods manufacturers spend more than $20
billion annually on innovation and R&D, yet the new product
introduction success rate is still only 3%. While crowdsourcing
may not change the success rate, the vast array of new tools and
technologies will make it easier and less costly to engage crowds
and establish on-demand, high-value connections.
2. Building a 360-Degree Consumer Data Hub: Today, consumer
goods manufacturers hold consumer data in disparate data-
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1360
“By 2016, Gartner
predicts a consumer
goods manufacturer
will be able to leverage
comprehensive
individual profiles for
their top one million
consumers.”
bases, managed by different departments and different outside
agencies. This makes a comprehensive view of a single consumer difficult. While proprietary consumer insight has been a
central force in consumer goods marketing, technology has the
power to accelerate the quality and timeliness of a consumer
goods company’s insights. We see technology vendors, like
Oracle, Teradata and SAP, actively working with consumer
goods clients to seize this opportunity. These insights, and their
correct application, will likely be as important as a consumer
goods manufacturer’s products. By 2016, Gartner predicts consumer goods manufacturers will be able to leverage comprehensive individual profiles for their top one million consumers.
This type of a database sets up consumer goods companies for
true lifetime 1:1 marketing, so long as they carefully navigate
the balance of privacy with transparency and delivery of real
value in exchange for trustworthy, personal information.
3. Direct-to-Consumer E-Commerce: Consumer goods manufacturers have begun to change their expectations for ecommerce, viewing it as a viable means of responding to
market shifts, generating revenue and developing a direct
relationship with their consumers. As we reported last year,
direct-to-consumer e-commerce was seen as the No. 1 channel investment priority for consumer goods manufacturers
in the U.S. and the U.K. In fact, Gartner predicts by 2018, up
to 10% of consumer goods manufacturers’ revenue will come
Digital Marketing
from direct-to-consumer e-commerce. We see an
increasing number of consumer goods manufacturers joining firms such as Procter & Gamble,
Kraft Foods, Nestlé, L’Oreal, Clorox and Diageo
in opening direct-to-consumer e-commerce sites
or participating in e-commerce marketplaces
such as Ocado in the U.K. and Taobao in China.
These sites often include proprietary content to
complement the convenience of ordering online.
Vendors, like Hybris, Digital River, PFS Web and
Ebay, are helping consumer goods companies
build their expertise as online retailers.
Whether you agree or disagree with our predictions, the message is clear: Consumer goods
companies are investing more in direct relationships. One of our consumer goods clients put it
aptly: “We have a right to these relationships.” As
retailers exercise their market power by charging
more for trade promotions, increasing private
label shelf space and slowing growth of retail
square footage, we believe consumer goods companies have to pursue more technology-driven
direct relationships with consumers, including
direct routes to market. We continue to recommend that consumer goods CIOs evaluate the
technologies that will garner them increased
share of sales in the short term, or will position
them as more agile and stronger players as the
market improves (see Figure 13).
Digital Marketing in
Consumer Goods
figur e 1 3 :
Consumer Goods
Manufacturers
Retailers
Consumers
Source: Gartner, Inc.
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Supply Chain
Visibility
How does your company define
this critical priority?
B y C h r i s t i a n T i t z e , G a rt n e r Supply Ch a in
Research Director
Today, supply chain visibility is one of the top priorities
for supply chain managers. But there are several definitions that describe visibility — from “multi-tier supply
chain visibility” (MTSCV) mainly from the view point of
supply, to “control tower” used in logistic execution, to
“end-to-end supply chain visibility” (E2ESCV), a description spanning the whole extended value chain. Hereby,
E2ESCV aims for the following: “providing controlled
access and transparency to accurate, timely and complete
plans, events and data within and across organizations
and services operating supply chains”.
In order to gain this E2ESCV, different views, use
cases, data elements, time horizons and business partners need to be considered with two main activities
necessary: 1) the capturing and analysis of data and 2)
responding in a timely manner if necessary.
The main drivers for gaining visibility are a higher
order fulfillment rate, better service levels and higher
profitability together with reduced risk. Once having
implemented visibility capabilities, companies have
achieved the following benefits: less inventory, better
on-time performance, reduced viability in lead times or
optimized freight. Examples state 20% reduced inventory, significant reduction in returns or 5% less freight
cost. Those are all facts that speak for themselves, and
are valid across industries.
Of course there are always three pillars necessary
to achieve this: People, process and technology. And,
hereby, we do not speak about classical ERP applications; it’s really a new application layer on top, which
allows connectivity, interoperability and data evaluation and presentation to gain visibility, an “information
hub” so to say. With this visibility gained, then valueadd capabilities can be applied to supply chain planning and execution domains, leveraging the insight.
Such platforms allow the interaction between business
partners and the reach of true E2ESCV. On the market,
we currently see many software providers offering such
Supply Chain Visibility
solutions, mainly as a service in the cloud, on the basis of subscriptions, and
based on a multi-tenancy architecture.
Let’s recap. E2ESCV is a critical enabler for companies on their journey
to becoming demand driven, reaching a higher degree of maturity in supply chain (see Figure 14). It’s all about multi-enterprise – it’s about processes
spanning not only within your company but also including external business
partners of any kind. It’s the improvement from initially departmental/functional visibility to enterprise supply chain visibility and then going further
to true multi-enterprise network visibility.
figur e 1 4 :
“E2ESCV is a critical enabler
for companies on their journey
to becoming demand driven,
reaching a higher degree of
maturity in supply chain.”
Supply Chain Visibility Enablement
Source: Gartner, Inc.
“ IN T E RNA L ” F O CU S
“ EXTERNA L ” F O CU S
Partner &
Optimize
S TA G E 5
Scale &
Collaborate
S TA G E 4
Visibility
Enablement:
Maturity
Stages
Extend &
Communicate
S TA G E 3
Standardize
& Integrate
S TA G E 2
S TA G E 1
Functional
Departmental
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Enterprise
Supply Chain
Multi-enterprise
Supply Chain
Multi-enterprise
Network +
SCP & SCE
Convergence
advertorial
The Digital Marketing Opportunity
Closing the Gap Between Traditional and Digital Media
Until recently, it seemed many companies viewed digital marketing as separate
from or incremental to an existing foundation in traditional marketing channels
and tactics. Lately, though, the conversation seems to have shifted. Companies
are referring less and less to traditional marketing and digital marketing, and
more and more to “marketing” as a holistic function that combines the best aspects of both disciplines to deliver a consistent, compelling and relevant brand
experience for consumers across channels.
Marketers are now considering strategies and tactics in both realms as part
of a larger portfolio of investment options that they can adjust up or down based
Marco Trezzi
Global Director, Brand Management
solutions, Consumer Products
Industry Business Solutions
SAP
on different variables, like media consumption by consumer segments, to create new
opportunities for reach and engagement. For example, recent findings highlighted
in the Kleiner Perkins Caufield Byers Internet Trends 2014 report showed that while
consumers today spend 5% of their time consuming print media and 20% of their time
consuming digital media via mobile devices, 19% of media spend is on print, while only
4% of spend is on mobile content. These were just two of several examples all pointing
to clear opportunities for marketers to drive better investments and targeting across all
“Consumers are in control of
where and how they move
along the path to purchase.
Compelling experiences,
delivered consistently
across channels and
tailored to a consumer’s
needs, are perceived as far
more valuable than simple
access to information,
offers, and commerce.”
channels – traditional and digital.
There are several key considerations for marketers to monitor when it comes to
consumer engagement. First, digital and social are no longer low cost alternatives to
traditional marketing investments, but instead need to be considered part of a comprehensive and integrated cross-channel marketing strategy.
Next, consumers value the journey as much as, if not more than, they value the
destination. How companies engage consumers along the path to purchase is as critical a consideration for developing direct to consumer relationships as is the influence
that can be exerted at the consumer’s point of decision.
And, along that journey, experience trumps access. Consumers are in control of
where and how they move along the path to purchase. Compelling experiences, delivered consistently across channels and tailored to a consumer’s needs, are perceived as
far more valuable than simple access to information, offers, and commerce.
Finally, agility is increasingly becoming more important than scale. Engaging consumers at the right place, at the right time and in the right way requires companies to
transform marketing execution. Teams must develop the capacity to test, iterate and
adapt on smaller scales, in faster cycles and to more targeted segments to optimize
marketing performance and spend effectiveness.
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The Retail Perspective
How Product Returns Will Impact Consumer Products Companies
By Tom Enri g ht, G artn er Su pply C ha i n R e s e a r c h D i r e c t o r
Across the retail sector, the volume and complexity of returns are increasing
as retailers pursue growth through their online business. However, most
retailers lack a cost-efficient returns process to manage today’s volume of
returns, and so they must make process and technological improvements
in their reverse logistics capabilities. By doing so, this could impact their
consumer goods suppliers.
The main challenges facing retailers are:
•A historical under-investment in how they manage returns
•A poor record of re-selling returned product at full price
•Excessive inventory resulting from a disconnect between their buying
and inventory management processes
A new Gartner global research study into the ‘Multichannel Fulfillment
and Returns’ practices of 300 Multichannel Companies, across a wide variety
of retail sectors will soon be published. Among many insights gained, these
companies told us that they only resold at full price 48% of the products returned by consumers (see Figure 15), indicating some significant deficiencies
within the supply chain operations of those companies. Furthermore, 70%
believed that returns would grow in the next three years.
When asked how well their buying and inventory management processes
were integrated, only 32% had suitable automated integration (see Figure
16), leaving the majority open to buying excessive stock by not considering
returned volumes within their supply chain.
Retailers will have to address the issues that returns present to them today,
and will continue to do so in the future, especially as they agree returns will
increase. This will, in many cases, also have an effect of increased returns to
their consumer product suppliers.
Retailers will also need to more closely integrate their buying and inventory management processes to reduce excessive stock. This change will result
in less being bought from their suppliers.
Improved management of product returns by retailers will therefore have
an upstream effect on their consumer goods companies.
Percent of Product Resold
at Full Price
f i g u r e 15:
P R O D U CT
10% 7%
Do not measure
14%
Less than 25%
30%
25% to 49%
50% to 69%
22%
70% to 89%
17%
More than 90%
Mean = 48%
Source: Gartner, Inc.
Degree of Buying and
Inventory Integration
f i g u r e 16:
P R O D U CT
13%
Fully Integrated
32%
Manual Integration
No Integration
55%
Source: Gartner, Inc.
“Most retailers lack a cost-efficient returns
process to manage todays’ volume
of returns, and so they must make
process and technological
improvements in their reverse
logistics capabilities.”
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