The future of manufacturing CPG companies

McKinsey published a fascinating report on the future of manufacturing CPG companies.

The authors correctly point out that digital transformation is no longer optional—it’s vital for CPG companies that want to thrive. But recognizing a need and addressing it are two different things.

First, let’s examine the need. McKinsey sums it up nicely:

Among the most significant factors affecting the challenge of a company-wide transformation is the degree to which the production network is fragmented. Moreover, CPG products often tend to have a low value density. This combination of widely fragmented production networks consisting of many smaller sites, each producing relatively low-value-density products (think, for example, toilet paper, dishwasher detergent, or toasters), often makes it difficult to achieve great return on investment (ROI) from digital transformation at any given site. Multisite transformation is complex and demands highly effective planning and coordination on a network-wide level.

Addressing CPG Product Innovation Challenges

It’s no secret that agile start-ups are gaining market share. They move fast. They aren’t weighted down by layers of decision making, caution and technical processes. Global organizations cannot have the same agility. However, they can take steps to update operational procedures that will allow them to respond to change swiftly. These changes, combined with a company’s current brand recognition, will strengthen market share and position a company for future growth.

The most important thing a global enterprise can do is use a single, automated system to manage innovation, R&D, and product development. Simplifying and automating processes will yield a variety of benefits:

• Introduce efficiencies and simplify cross-functional planning and decision-making. For organizations with fragmented production networks, a single system can bring clarity to a variety of issues and result in faster time to market.

• Bring transparency to information, processes and a global portfolio. Having a central place for knowledge sharing increases collaboration and the ability to reuse existing know-how and technology.

• Ensure that product investments support corporate strategy. Too often, business leaders don’t have sufficient visibility through the different layers of an organization to make informed decisions. Having revenue and cost projections and other key metrics in one place, and clearly understanding how they relate to corporate strategy, paints a comprehensive financial picture that is essential for success.