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BI for the CPG Industry - Supply Chain Visibility Drives Performance

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Organizations in the consumer packaged goods (CPG) industry are discovering that high product volume sales come at the expense of extreme data complexity.  Meanwhile, these companies struggle to …

Organizations in the consumer packaged goods (CPG) industry are discovering that high product volume sales come at the expense of extreme data complexity.  Meanwhile, these companies struggle to maintain open lines of communication with their retail customers and distributors in order to manage the upstream flow of product.

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  • 1. September, 2009 BI for the CPG Industry - Supply Chain Visibility Drives Performance Sector Insight Many organizations in the consumer packaged goods (CPG) industry are Aberdeen’s Sector Insights experiencing a tradeoff between the benefit of high product volume sales provide strategic perspective coming at the expense of extreme data complexity. At the same time, these and analysis of primary companies struggle to maintain open lines of communication with their research results by industry, retail customers and distributors in order to better manage the upstream market segment, or geography flow of product. The main challenge however, is that these issues are no longer specific to the IT department. Line-of-business managers in marketing, sales, manufacturing, and procurement - to name a few - are now forced to drive tangible business value from this quagmire of data and generate a healthy flow of information throughout the value chain. In the face of these challenges, many CPG organizations are gravitating towards business intelligence (BI) tools to help create those supply chain linkages and deliver product more efficiently. Aberdeen’s April 2009 Benchmark Report, Moving Past Spreadsheets: What You Need to Know about BI Deployment Strategies, demonstrated that 40% of companies in the CPG industry are driven towards BI technology in order to address their need to improve speed of access to relevant business data. This Aberdeen Sector Insight examines companies in the CPG industry to determine how these organizations are driving BI into the hands of more business managers in Recommendations order to better manage fluctuating product demand. Key recommendations for CPG companies seeking better The Value of Timely Information supply chain visibility and When deployed efficiently, the visibility that BI tools provide can translate overall business performance to significant business performance improvements. Aberdeen's data shows improvement: that CPG companies have been successful in leveraging BI to drive marked Expanded on page 6 enhancements in several areas of customer service (Figure 1). √ Establish a method for Figure 1: Driving Better Customer Service with BI defining strategic and tactical KPI √ Seek ways to deliver BI to Average Y/Y Change 6.0% 6.0% 5.0% more lines-of-business within 4.0% 3.8% the organization 3.2% 2.5% √ Create a formal process for 2.0% 0.6% data collection and 0.0% integration Customer issue Customer satisfaction Customer retention √ Explore all deployment resolution speed rate options for BI CPG Industry Industry Average n = 285 Source: Aberdeen Group, May 2009 © 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 2. BI for the CPG Industry - Supply Chain Visibility Drives Performance Page 2 “Until now, the cost of BI With clean, relevant, and timely information at their fingertips, these solutions has been prohibitive. companies are able to address customer issues in a shorter time frame, However, as our business has ultimately leading to a higher degree of customer satisfaction overall grown, our needs have retention. The ability to access information faster and make quicker increased, resulting in a more decisions based on that information is a key underpinning of improvement in favorable cost / benefit ratio. several key areas of the business, including customer service. Because we run lean, timely information is important, so the Customer service is a crucial element of every business, but when speed of access to relevant considering the today's economic uncertainty, coupled with the top-heavy business data is also concentration of many retail customers, channels and distributors, CPG important.” companies are in a precarious position with respect to their customers. ~ Finance Director Retailers are more price sensitive than ever and with the fierce competition US Food and Beverage inherent in the CPG world, the ability to resolve customer issues quickly, or Company preempt them altogether can mean the difference between retaining or losing millions of dollars of business. CPG companies recognize the need for customer visibility and have proficiently leveraged BI tools to help to understand, instill retention practices, and grow their customer base. Faster Information, Better Decisions From a business perspective, what sets CPG companies apart from other industries and enables heightened customer service is their ability to find information quicker and make more timely decisions. Aberdeen's March 2008 Benchmark Report, Data Management for Business Intelligence, revealed that companies of all shapes and sizes are struggling to manage an average of 15 unique data sources. That type of data heterogeneity can wreak havoc on the most sophisticated of IT departments and lead to incorrect or irrelevant information delivered to the wrong people at the wrong time. BI tools offer the ability to sift through mountains of data in order to find that one tidbit of information that can aid in decision making. The data shows that companies in the CPG industry have been successful in leveraging BI for reduced time-to-information and time-to-decision (Figure 2). Figure 2: CPG Industry Uses BI for Quicker Information Access Percentage of Respondents 50% 50% 45% 39% 40% 40% 35% 30% 29% 25% Saw a decrease in "time-to- Saw a decrease in "time-to- information" decision" CPG Industry All Other Industries n = 285 Source: Aberdeen Group, May 2009 © 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 3. BI for the CPG Industry - Supply Chain Visibility Drives Performance Page 3 A Foundation of Organizational Maturity There is a certain chain of competency that leads to improved business "We spent too much time performance. In this case, superior customer service is supported by the collecting and collating our ability to gather and act upon information in a shortened timeframe. This data, and not enough time analyzing what it meant. Moving improved time-to-information and decision is then underpinned by several towards a collaborative BI areas of organizational maturity. The ability to properly leverage a BI approach has centralized solution goes well beyond just the features and functionality. Companies responsibility for data need to have a wide portfolio of technical capabilities to help capture, management. The result has assemble, and deliver the right information to the right people at the right been increased quality of our time. Aberdeen's research shows that companies in the CPG industry are data, and more importantly it more organizationally mature when it comes to several areas of process, has re-focused management knowledge management, organization, and performance measurement attention to enable us to act on (Figure 3). the intelligence gathered." ~ David Greene Figure 3: Key Organizational Capabilities for BI Management Senior Manager - Commercial Analysis Genzyme Corporation Percentage of Respondents 55% 54% 50% 47% 46% 46% 45% 40% 39% 38% 35% 35% 35% 30% Well defined skill Ability to monitor Enterprise-wide Automation of sets for BI BI system BI deployment report utilization procedure generation and delivery CPG Industry All Other Industries n = 277 Source: Aberdeen Group, May 2009 First, given the complex nature of their information environments, CPG companies are more likely than firms in other industries to have developed or acquired the appropriate technical horsepower to manage the collection, assembly, and delivery of information to their key stakeholders. Having these defined BI skill sets helps ensure that the data is accurate and more relevant to the appropriate stakeholder. From a management standpoint, CPG companies are also more likely to have the ability to monitor utilization rates of the BI system. This promotes greater adoption of BI through the ability to reduce or reallocate underutilized systems. From a technology standpoint, CPG companies also excel in their ability to leverage features and functionality in order to get information into the hands of non-technical users faster. Between order tracking, inventory management, supplier lead times, promotions management, and many other information intensive applications, CPG companies consume an © 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 4. BI for the CPG Industry - Supply Chain Visibility Drives Performance Page 4 overwhelming number of reports on a regular basis. The ability to automate the generation and delivery of these reports allows companies to "CARFAX is an information free up IT resources for more technically complex issues, while at the same company. Our continuing success is directly related to time delivering and making valuable information pervasive to the many our ability to fully leverage business users throughout the enterprise. business intelligence. In the last 12 months, we have made great Beyond the IT Department strides in using our BI infrastructure to demonstrate Perhaps the most notable trend emerging from Aberdeen's fact-based data the tangible value of CARFAX is the push to bring BI and analytical visibility into the hearts and minds of to our subscribers and non-technical line-of-business (LoB) managers. On a surface level, many partners. In a tough economy, think of BI as a strategic tool for planning, budgeting, and forecasting, largely emotional consumption residing in the financial department. Others may view BI as a tactical tool decisions get usurped by cold for real-time visibility into business information. The simple fact is that BI rationality. In this environment, tools have grown in business applicability and improved in ease-of-use, the CARFAX Vehicle History cultivating an environment in which just about any business function from Report has a growing HR to procurement can find value in BI. This notion is proved out time and importance to the shrinking population of active vehicle again in the research. Aberdeen's June 2009 Benchmark Report, Pervasive shoppers. Our BI tools helped BI: Six Steps to Enterprise-wide Business Intelligence, demonstrated that Best-in- us discover and communicate Class companies were more likely to deliver BI to more roles within the the 10-times ROI of using organization as well as more LoBs across the company (Figure 3). CARFAX to stock good cars, build trust in the dealership, Figure 3: Best-in-Class Deliver BI to More Lines-of-Business and improve inventory turnover." Operations 77% ~ Philip Moore 47% Director of Insights Sales 67% 33% CARFAX, Inc. Finance / 58% Accounting 50% Customer Service 56% 24% 42% Best-in-Class Marketing 32% Industry Average 20% 40% 60% 80% Percentage of Respondents, n = 285 Source: Aberdeen Group, May 2009 The concept of pervasive BI is becoming a priority for more organizations across many industries, but the tie-in with the CPG world becomes evident when considering the importance and associated fragility of CPG - retail relationships. While the market downturn has had a varied impact on the CPG world - some have seen a predictable slowdown as disposable incomes have shrunk, while others have seen an influx of business as consumers migrate to lower priced items - the only real certainty is uncertainty. As CPG companies look to mitigate that uncertainty to the best of their ability, many strive to create information linkages to their retail counterparts in © 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 5. BI for the CPG Industry - Supply Chain Visibility Drives Performance Page 5 order to better manage fluctuating demand and nurture their retail customer relationships. On the other side of the fence, Retail companies are also following suit by leveraging BI and analytical tools for better visibility into supplier activity. Aberdeen's November 2008 Benchmark Report, Increasing Retail Productivity: Enterprise-Wide Business Intelligence, showed that the top performing retail organizations were far more likely than all others to exploit their analytical strategy to help create supplier and back office information linkages (Figure 4). Figure 4: Best-in-Class Retail Applications of BI 60% Percentage of Respondents 56% 53% 50% 45% 40% 37% 32% 30% 26% 20% Back Office Sourcing Procurement Best-in-Class Retail Companies Average Retail Companies n = 153 Source: Aberdeen Group, November 2008 With the appropriate usage of tools like BI, the vaunted ground of open communication and information exchange between CPG and retail companies is no longer a pipe dream. For their part, CPG companies are also working to leverage a pervasive BI strategy to bring analytical visibility across the fence and into their retail partners. The February 2009 benchmark report, Collaborative Business Intelligence: Three Steps Toward Superior Customer Responsiveness, showed that 38% of CPG companies were already working toward a collaborative effort with their suppliers and customers to deliver BI capabilities across their value chain. Case in Point – Large US Soft Drink Company The corporate goal at this large manufacturer and distributor of soft drink products was to automate interactions with customers in order to improve customer performance, and create business efficiencies and cost savings. In the food service business, the company owns the end-customer relationship, but the distributor channel delivers products and dispensers. As part of its enterprise CRM system, the company has implemented an e- commerce solution that allows the end-customer to order directly. Delivery of product is then executed in one of three ways: direct, third-party, or through the bottler. In its call centers, customer service reps now have a holistic view of customers – they can see what order activity has taken place, is still open, and what equipment is in-place at customer sites. © 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 6. BI for the CPG Industry - Supply Chain Visibility Drives Performance Page 6 The company's CRM system manager states, "This is important right now. “The pervasiveness of BI at our We are in the midst of a roll-out of a new food service fountain dispenser. organization has now extended The device is pre-loaded with software that tracks each and every pour that outward to customer-site is made, and data is sent back to us so that we can use our BI capabilities to devices, and customer-facing assess the customer's volume dispensed by product. Collecting data about applications.” what is served in real-time allows us to do some things that were previously ~ CRM Application Manager very difficult or impossible." The data generated from the customer-installed Large US Soft Drink Company dispensing device enables the customer service team to become far more predictive and will also reveal dispenser service scheduling intelligence. "We can now tell the customer how much product they need, and help them to manage inventory and ordering efficiency. They will end up with less product aging on the shelf, and we'll save time and money on delivery charges from our distribution channel. We can also be proactive about machine replacement and repair by monitoring the devices in real-time. The pervasiveness of BI at our organization has now extended outward to customer site devices, and customer-facing applications. We plan to utilize the data we collect and by the time this project is fully deployed, we'll be seeing data from literally millions of devices all over the world." The Challenge of Market Volatility The outlook for the CPG industry however is not entirely rosy. As mentioned previously, while some companies experience a counter- cyclicality in their business wherein sales actually improve during an economic downturn, the majority are negatively affected by the volatility in the market. Fluctuating energy costs, exchange rates, and shipping costs – to name a few – can wreak havoc on these companies. If the overall goal is to generate sustainable profitability and revenue growth, the various elements of information management discussed previously are crucial steps on the road, but typically aren't the end game themselves. As a company builds competency with their people, processes, and technology, these capabilities are leveraged to generate improvement in business performance. Aberdeen’s research shows companies in the CPG industry, while successful in achieving several intermediate milestones, have not been successful in achieving the ultimate goal of revenue and profit growth (Figure 4). Figure 4: CPG Falls Short in Revenue and Profit Growth Average Y/Y Change 24% 24% 25% 15% 4% 3% 5% 0% -5% -2% Organic Revenue Operating Profit Best-in-Class Industry Average CPG Industry n = 285 © 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 7. BI for the CPG Industry - Supply Chain Visibility Drives Performance Page 7 Source: Aberdeen Group, May 2009 Despite the economic situations, the data shows that Best-in-Class companies were able to achieve double-digit improvements in organic (non acquisition-related) revenue and operating profit, compared with slight improvements for the industry average. The CPG industry on the other hand has been unsuccessful in translating their improved time-to- information into top and bottom line business improvements, showing flat and declining revenue and profitability respectfully. Key Recommendations Competing in an industry that sorely needs the business visibility and analytical capability that BI tools deliver, CPG companies are becoming Sector Definition more mature and sophisticated in their information management strategy. Use this space to define the Despite flat or declining top and bottom line business performance, many company size, headcount, CPG companies have put the pieces in place to be successful with a BI industry, or geography sector implementation. The following recommendations are designed to help CPG in comparison to the overall companies take their BI strategy to the next level and drive tangible data set from which it stems. performance improvements: • Establish a method for defining strategic and tactical KPI (Key Performance Indicators) to measure business performance. Efficient inventory management, solid customer service, and skillfully targeted marketing are all vital elements of a good tactical business approach. However, without alignment of these factors to the overall strategic business goals, companies can flounder and underperform. Best-in-Class companies are more than twice as likely as all others to have strong alignment between both strategic and tactical performance metrics, promoting a tighter focus on the long term vision supported by tactical efficiency. • Seek methods to deliver BI and analytical capabilities to more lines-of-business within the organization. As they move toward a more pervasive deployment of BI within the organization, Best-in-Class companies have a two pronged approach to reach this level of widespread BI. First, the Best-in-Class have been more successful in delivering BI to more business functions that can benefit from the technology. Second, they are making BI more usable and applicable to more roles within each business function. This line-of-business approach is a key underpinning in Best-in-Class companies' ability to arm non-technical employees with analytical functionality and drive substantial improvements in revenue and profitability. • Create a formal process for data collection and integration. Companies large and small constantly struggle with the "garbage in, garbage out" rule of thumb. The more duplication, corruption, and general dirtiness that exists in their data, the less reliable their decisions will be when based on that information. Best-in-Class companies are 85% more likely than all others to have a time-tested © 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 8. BI for the CPG Industry - Supply Chain Visibility Drives Performance Page 8 process for data collection and integration to ensure that their information is clean and relevant. By delivering better information to their key decision makers, Best-in-Class companies have infinitely more confidence in the actions they take based on their data. • Explore all deployment options for BI (SaaS, Web Server, On- Premise) to determine the right technical fit for the organization. Organizations have a wide variety of needs when it comes to BI and a barrage of questions that support their decision to deploy. How much data will the system need to access? What is the required latency of information retrieval? How many users will be supported? How quickly does this need to be up and running? What information security issues are in play? These questions and many others are vital toward understanding what type of BI solution is the best fit. By leveraging the technical expertise in house, coupled with a first-hand understanding of the end-user needs for BI, companies should explore all the various options for BI and tailor their strategy to best fit their particular needs. For more information on this or other research topics, please visit www.aberdeen.com. Related Research BI or Bust: Best Practices for Using The ERP/BI Connection: Adding Value Business Intelligence During a Recession; through Actionable Intelligence; July August 2009 2009 BI for the SMB 2009: How to Slash Cost Pervasive BI: Six Steps to Enterprise-wide and Empower the Business User; July Business Intelligence; June 2009 2009 Author: Michael Lock, Research Analyst, Business Intelligence (michael.lock@aberdeen.com) Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte- Hanks (Information – Opportunity – Insight – Engagement – Interaction) extends the client value and accentuates the strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 723-7890, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. 043008a © 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897
  • 9. BI for the CPG Industry - Supply Chain Visibility Drives Performance Page 9 © 2009 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897

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