Executivesummary
Today, the consumer goods sector faces significant challenges, including increasing
input cost volatility...
Consumergoodsindustryfaces
multiple,complexchallenges
The multiple business challenges facing consumer goods
companies are...
cost per transaction. (A leaner, more predictable cost structure
also enables resilience and the consistent global applica...
will be achieved when it moves beyond the first two phases,
which can take between five and ten years.
However, forward-lo...
For example, a major global beverage company partnered with
Genpact to streamline and standardize its business process
sup...
About Genpact
Genpact Limited (NYSE: G) is a global leader in transforming and running business
processes and operations, ...
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Market conditions are shaping the future operating model for the consumer goods industry’s enterprise processes

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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).

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Market conditions are shaping the future operating model for the consumer goods industry’s enterprise processes

  1. 1. Executivesummary 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. INTELLIGENT ENTERPRISE Tarun Jit Singh Chopra GBS Expert and Vice President, Reengineering Gaurav Kumar Agrawal Assistant Vice President, Product Innovation and Marketing Marketconditionsareshaping thefutureoperatingmodelfor theconsumergoodsindustry’s enterpriseprocesses
  2. 2. Consumergoodsindustryfaces multiple,complexchallenges 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. Figure 1. Significant potential exists for industrializing operations in consumer goods companies * includes metal products, rubber and plastics, printing and publishing Manufacturing Distribution Customer care Marketing and sales Back-office support General management DIRECTIONAL 4% 1% 95% 50% 30% 20% 25% 5% 70% 30% 30% 40% 25% 5% 70% 0% 100% 0% 30% 10% 60%9% 1% 90%R&D Procurement Industrialized Enterprise Ops Scope and Impact Research support Sourcing and procurement support Inventory and demand forecasting product cost accounting Logistics optimization Contact center support Sales and Marketing ops and analytics support All G&A support (F&A, IT, HR) Decision and transformation support % already industrialized % not applicable% industrialization potential Source: McKinsey Research Institute, Genpact Analysis Industrializedoperations:thekeytoagilityandresilience 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 OthersIndustrial Manufacturing CPGConsumer Electronics ChemicalsAutomotive HR F&A Engineering Services/R&D IT- Infrastructure IT- ADM Supply Chain/ Logistics/ Procurement Industry specific Customer Care Analytics Source: Genpact analysis, Everest Group GIC 2013 data 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
  3. 3. cost per transaction. (A leaner, more predictable cost structure also enables resilience and the consistent global application of best practices.) 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. 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-to- date 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, Media & Entertainment Insurance Healthcare payers Life Sciences Automotive Oil and Gas Chemicals Capital Markets Retail Hi-Tech Extentof3rdpartyoutsourcing Extent of internal shared services Information services Engineering & Construction Telecom Banking Freight and logistics Travel & Transportation Industrial manufacturing Government CPG Utilities Healthcare providers Above average adoption of GBS Below average adoption of GBS Low High Above average adoption of GBS Below average adoption of GBS High Source: Genpact analysis, Everest Group and SSON Survey 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 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. Figure 2. The consumer goods industry can increase its agility by improving GBS adoption to match the level of other industries Set Up Keystrategicchallenge Growth Maturity 0-2 years Reduce complexity, drive efficiency 2-5 years Operational excellence, efficiency, variable cost 5+ years Maximize effectiveness and continue to drive cost • 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 • 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 • Process optimization with defined SLAs and KPIs • Target global centers with 10-25% net cost savings Figure 4. The full benefits of GBS are realized after the foundational stages have been completed Evolvingthroughthematuritycurve 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 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 0 21 %Annualrateofgrowth Current estimated opportunity to industrialize operations (in USD billion) Healthcare - Provider Healthcare - Payor Manufacturing Consumer Goods Life Sciences P&C Insurance Commercial Banking Forecasted growth in industrialized operations by industry (2012-2017) Source: Genpact analysis Figure 3. The consumer goods industry is expected to be among the fastest growers in industrialized operations
  4. 4. 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. 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. 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. 2.5 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) Consumer goods All industries AveragenumberofprocessesinGBS Source: Everest GIC database; Genpact Analysis Figure 5. Recent addition of processes to shared services will enable leapfrogging in consumer goods GBS GBS increasingly includes non-commodity, higher-touch ops PURCHASING •Supplier evaluation •Strategic sourcing •Supplier negotiations SALES OPS • Collections • Order entry • Invoicing • Tele servicing LEGAL •Counselling •Litigation •Intellectual property protection FINANCE •Budgeting •Financial reporting •Management reporting Audit ACCOUNTING •Accounts payable •Accounts receivable •General ledger •Fixed assets •External reporting •T&E processing •Cost accounting PURCHASING •Purchase order processing •Contract admin COMMUNICATIONS •Investor relations TAX •Planning Finance IT •Application development •Telecommunications •Technical infra development TAX •Filing •Administration TREASURY •Cash management •Payment processing IT •Applications maintenance •Data processing/ management •Help deskHR •Payroll processing •Payroll/bens admin •Expat/relo admin STRATEGICIMPORTANCE,CUSTOMERCONTACT COMMODITIZATION, STANDARDIZATION Traditional candidates Emerging candidates Expertise/Consultative “High Touch” Services Routine, Front- Office Services Expertise/Consultative “Low Touch” Services Routine, Repetitive, Back-Office Services ANALYTICS •TPO/ TPM •MDM, BI support •Social media support •Predictive analytics e.g. marketing, S&OP •Demand, inventory and production planning •Logistics and fulfilment IT •Advanced data management HR •Recruit, staff •Train and develop CUSTOMER SERVICE •Complaint mgmt •Product support •Returns mgmt. Figure 6. Consumer goods shared services are expanding in scope to include non-commoditized core industry processes
  5. 5. 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-touchoperationsarealso becomingcandidatesforoperating modeltransformation 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. 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. Consumergoodscompaniescanrealize strategicbenefitsthroughtheright targetoperatingmodel 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. 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 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 high- level 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 Source: Genpact experience Boundary conditions What efficiency, effectiveness, risk, and standardization are acceptable during and after transformatiom? a Will resources released from transaction processing and controlled reoriented towards decision support? Resource redirection b What structure and operating model should the Finance organization have to support the emerging business model? Organisational choices c What new process, people practices and technologies are required to achieve the desired objective New delivery DNA d Figure 7. Actionable choice patterns emerge by triangulating four themes
  6. 6. About Genpact Genpact Limited (NYSE: G) is a global leader in transforming and running business processes and operations, including those that are complex and industry- specific. 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. For more information, visit www.genpact.com. Follow Genpact on Twitter, Facebook and LinkedIn. © 2013 Copyright Genpact. All Rights Reserved. About the author 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 Gaurav Kumar Agrawal has over 8+ years’ experience in shared services advisory, product innovation and marketing roles. For more information, contact: gbs.solutions@genpact.com Visit us at: http://www.genpact.com/gbs Creatingaviableoperatingmodel 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. 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. 1 http://www.genpact.com/docs/resource-/the-adaptive-roadmap-whitepaper.pdf 2 htttp://www.genpact.com/docs/resource-/innovation_and_industrialized_business_operations_an_industry_specific_view.pdf?sfvrsn=4

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