With supply chain volatility now the norm, value-chain visibility must become one. By Shady Ghattas and John Buckley
The days of consumer-packaged goods companies (CPGs) operating in largely predictable environments are over. The coronavirus pandemic – an epic disruption – appears to have marked a permanent departure from a world of slow-paced planning based on reliable assumptions and extended execution cycles.
Instead, political, trade-policy, conflict-related, competitive, social, regulatory, and climate-driven disruptions that affect much more of a CPG than just the supply chain have become more the rule than the exception.
If the technologies to enable tighter planning cycles, more dynamic forecasting that covers wide areas of potential impact, and speedy adaptation across the business didn’t exist, CPGs could simply go on as before, if exposing themselves to more risk and making less money. But the technologies are out there, and they’re getting better as AI embeds into so many workflows. CPGs must adapt because their competitors will adapt.
Value-chain visibility
Conceptually, at least, it’s simple. When iterative short-range planning becomes more important amid endemic volatility, the interconnectedness of and visibility into a CPGs’ processes also becomes more important. This isn’t to say supply chain visibility in itself isn’t critical. Rather, it’s just not enough.
When disruptions and volatility rule the day, you need visibility through the entire value chain. That enables a supply chain to bend rather than break. You enable bend in part by adding buffers and backups in supply chains that globalization had squeezed lean to the point of brittleness. You also get bend by distributing the weight from supply-chain pressure points across other business functions.
Tariffs are just one example
As an example, assume hefty tariffs are expected in a few months – something CPGs have recent experience with. There’s motivation to produce and sell more products before the tariffs hit, so you plan for that. That touches finance – where will the cash come from? – and also sales and marketing, which may need to move products fast to make room in warehouses that logistics must then adapt. What’s the pricing strategy? What promotions should we consider? How will we be sure we can deliver to our wholesalers? How will retail shelf availability hold up?
All that needs to be tightly integrated in planning, and there must be immediate feedback both through iterative planning processes and also once you’re executing: If supplies get tight because of your pre-tariff push, you don’t want to be promoting against empty shelves.
Such planning may also yield the need for alternative suppliers or even production facilities. In that case, your planning extends to supplier vetting, sourcing, hiring, and training, production setup, and more. Tariff compliance may involve tracking the source of inputs, as aluminum smelted in China and finished in Canada could face different tariff levels applying to the same rolled product.
Harmonized data, rationalized processes, and business transformation
How do you contend with all that on a practical level? Clearly, there are too many moving parts for point solutions to grapple with. High-velocity planning and execution touching supply chain and so many other parts of the business need reliable, consistent, harmonized data. That requires integrated, cloud-based business suites delivering under the banner of business transformation. Many CPGs are well along that process, others, less so.
Doing business transformation right demands deep dives into how various functions work internally and with external partners. How do warehouses talk to transportation? To manufacturing? How does manufacturing talk to procurement?
Getting answers that yield rationalized, harmonized data typically also highlights ways to improve and automate processes within and across business functions, increasingly with help from AI. So, as a CPG improves its ability to plan amid the new normal of repeated disruption, it also becomes a more efficient, unified operation across the board. The front office and the back office become one office.
Start small but start now
It’s not easy to do, but we’ve seen customers benefit. One, a toilet-paper maker, was able to withstand whipsawing coronavirus-era demand because of the improved visibility their cloud ERP enabled. More recently, a high-tech customer considering potential tariffs as well as critical-mineral shortages, drastically sped up and improved its contingency planning and strategic prioritization without having to deploy a small army of data jockeys to crunch the numbers.
The grand notion of value chain visibility in the name of resilience, agility, and profitability can seem daunting. If you’re just embarking on that journey, start with a specific problem. Maybe it’s improving day sales outstanding. Maybe it’s improving the way you exchange data with your key suppliers, or how you track ESG metrics, or how demand sensing feeds back into manufacturing and the supply chain. There are lots of options. Given the disruptions ahead, CPGs should be exploring them.
Shady Ghattas and John Buckley
Shady Ghattas is SAP’s global VP and head of the consumer products business unit. He is a trusted advisor for the consumer products industry; accelerating innovation and drives profitable and sustainable growth. John Buckley is SAP’s Midwest Consumer Products Industry Advisor, providing industry perspective, strategic solution advice, and thought leadership to support key priorities for SAP’s new and existing customer base.