role of analytics in consumer packaged goods industry
DESCRIPTION
Role of Analytics in Consumer Packaged Goods (CPG) industry.TRANSCRIPT
Role of Analytics in CPG IndustryAdarsh A & Dinakar J
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Introduction
* http://www.gmaonline.org/about/
Contribution to the economyAccording to Grocery Manufacturers Association* data, the US CPG market is worth $2.1 trillion
and employs 14.7 million workers in the United States. The industry contributes $1 trillion in
added value to the economy every year.
13%
87%
Economic Contribution
CPGRest
Employment0
2,000,0004,000,0006,000,0008,000,000
10,000,00012,000,00014,000,00016,000,000 14,700,000
# People Employed
Characteristics of the CPG industry
• High volumes
• Low contribution margins
• High stock turnover
• Extensive distribution channels
• Low switching costs for the consumer
• High market saturation
• Competitive prices
• Consumer behavior
Trends Across Sectors
Source: https://foodinstitute.com/images/media/iri/TTFeb2013.pdf
• Dollar Sales across categories increased
aided by inflation.
• Number of Convenience stores grew by
0.7% in 2012 and 1.2% in 2011
• Drug channel performance lagged
industry average in 2012
Trends – Economic
Source: GMA 2013 Financial Performance Report, Growth strategies – Unlocking the power of consumer
Net Sales growth rates slowed in 2012 for
both manufacturers and retailers amidst
slow economic recovery in the U.S.
Net Sales Growth Earnings Growth
Even though there was a decline in net
sales growth rates in 2012, earnings
growth rate increased for manufacturers.
Trends – Technological 1/2
Source: Winning with IT in consumer packaged goods: Seven trends transforming the role of the CIO: McKinsey & Company
Direct consumer relationship
Focus on individual customer needs, regain brand loyalty and
improves product decision making process
Mobile and location
based services
Amplifies the direct-to-consumer marketing, reduces the cost of
product launches and helps in improving shelf space
Shift to predictive
analytics
Provides real time data from social media and other online portals,
refine the traditional decision making process
Trends – Technological 2/2
Source: Winning with IT in consumer packaged goods: Seven trends transforming the role of the CIO: McKinsey & Company
Demand driven supply chain management
Use of technology minimizes inventory levels, improves service
performance and reduces stock-outs
Idea-to-product
accelerationsHelps in introducing new products faster and at lower costs
Trends – Geographical
Source: Trends that will shape the consumer goods industry – McKinsey & Co.
• 1 billion new consumers by 2020
• Increase in the middle income group - spending capacities of $10 and $ 100 per day
Role of Analytics
Pricing – Role of Analytics
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Lack of Visibility into Profit Margins
Managing Channel Partner Economics
Improving Trade Spend Effectiveness
Better Consumer Marketing
Data Dispersion
Issues
Provides insight into profit drivers at different levels of customer, brand and markets.
How Analytics can help?
Inputs on where the trend spend is invested and corresponding return. Compare across categories
Provides an integrated view of profitability across various channels of the supply chain.
Insights into demand elasticity of pricing strategies, understanding consumer behaviour in relation to price changes
Helps in understanding relationship between manufacturers and retailers margins. Suggest strategies for improvement
Marketing Mix – Role of Analytics
Optimizing Marketing Mix
Deciding on Trade Spend Allocation
Rise of Digital Consumer
Issues
Predictive analytics to determine effectiveness of each communication channel, assess the viability and forecast the channel’s impact on the sales revenue.
How Analytics can help?
Track impact of product launches in real time, develop customer insights, collaborating with business partners etc.
Tracking various key performance indicators, calculate ROI for each customer segment to budget and plan appropriately. Analytics models can predict promotion performance, enable scenario analysis
Portfolio Optimization – Role of Analytics
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Action 1: Invest to Broaden & grow
Action 2: Improve consumer value or transfer demand to like item and eliminate
Action 3: Simplify platforms, eliminate items
Current Position
New Item Productivity
Cost Improvement
Drivers
Item Incrementality
(optimum assortment)
Account (Item) Cost to Serve
and Profitability
Marketing Investment &
Demand Analytics
Productivity Improvement Process
Using Demand Analytics the companies can foresee how a product is going to perform and take appropriate action. See scenarios below:
Inventory Management – Role of Analytics
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Supply Chain Planning & Forecasting
Sourcing & Procurement
Fulfilment Services
Areas
Accuracy in forecasts, increases capacity utilization and inventory turns through demand and capacity forecasting and better collaboration between retailer and supplier
How Analytics can help?
Carries sourcing analytics , freight lane analytics, freight pay analytics and customer analytics
Strategic sourcing and spend analytics to reduce procurement costs, cycle time, better spend visibility
Returns & After-Sales Management
Facilitates root cause analysis and returns fraud analytics leading to reduction in returns rate and fraud rate
ConclusionConsumer Packaged Goods Companies have to continuously innovate to remain competitive. The
rapidly changing consumer behavior along with shortening customer loyalty periods have thrown
new challenges at the CPG Companies. The companies are now looking at innovative methods to
reach the end consumer.
Some leading companies have already established separate analytics divisions to accurately identify
the product attributes that are valued by the consumers. Combining the consumer's view of the
product with in-depth analysis of the portfolio supply chain, the companies would be able to offer
the right product/service for right price at the time when needed by the consumer.
To conclude, CPG companies have to invest in analytics not to go ahead but to stay in the race.
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