How Technology is Transforming the CPG Industry
Encumbered by disparate technology systems and minimal IT resources, more consumer packaged goods companies are turning to unified enterprise resource planning systems to run their global businesses more efficiently and profitably.
The winds of change are blowing through the consumer packaged goods (CPG) industry, where evolving consumer preferences, rising raw material costs, the ongoing trade wars, and the e-commerce boom are all pushing CPG companies to think beyond the boundaries of their current business models and technology infrastructures.
Saddled with cobbled-together IT setups that don’t integrate well with one another—and require a high level of internal IT support that most CPGs lack—these companies have to scale up to meet customer demands while maintaining a competitive position and serving a dynamic retail channel.
To achieve these goals, companies need enterprise-wide visibility, good inventory management, unified enterprise resource planning (ERP) systems, and point of sale (POS) systems that handle e-commerce, omni-channel, and brick-and-mortar transactions.
In this white paper, we explore the growth of the CPG industry, explain the key challenges that it’s dealing with right now, and show how a unified, cloud ERP can help organizations get over these and other hurdles to come out ahead.
Healthy Margins, Stiff Competition
Manufacturers, distributors, and marketers of physical goods that include (but aren’t limited to) household products, makeup, clothing, and food, CPG companies operate in an industry that’s on track to reach $721.8 billion in annual sales by 2020, up from $635.8 billion in 2015, according to Statista. Focused on making, selling, and distributing physical goods that are packaged, sold through retailers, and used by consumers, CPG firms operate in one of the largest sectors in North America.
Led by organizations like Coca-Cola, Procter & Gamble, and Unilever, CBP companies tend to have healthy margins and attractive balance sheets, but are also in a constant battle with one another for shelf space in physical stores. Focused on growing both brand recognition and customer loyalty, these companies tend to invest heavily in advertising and marketing that help to keep their products top of mind for customers.
“While consumer demand for CPGs largely remains constant, this is nevertheless a highly competitive sector, due to high market saturation and low consumer switching costs,” Investopedia points out, “where consumers can easily and cheaply switch their brand loyalties.”
The same companies are also dealing with small IT staffs, extended, global supply chains, patchworked technology systems, and a lack of enterprise-wide visibility. These issues can boil into major challenges when external issues like raw material cost increases, tariff changes, and international trade wars start to impact their operations. Operating in a competitive industry where customer demand remains fairly constant, CPG firms must be able to maintain profitability while also meeting their customers’ ever-changing demands.
Addressing CPG’s Most Pressing Challenges
In today’s volatile trade environment, CPG firms needs high levels of inventory management and accuracy, both of which help them manage ever-changing tariff complexities. Working with a broad network of geographically-dispersed suppliers, these companies also need solid supply chain planning, forecasting, and demand planning capabilities. These are just a few of the areas where legacy solutions usually fall short.
“In most cases, the CPG industry’s legacy solutions lack essential functional components of an integrated system that can handle complex inventory planning, for example,” said Shawn Flowers, Director of NetSuite Enterprise Solutions at GSI, Inc., “or associating landed costs with items in order to manage tariff considerations and other complexities.” There’s also no way to configure these financial and operational functions within a legacy ERP, he adds, nor can these tasks be handled effectively using spreadsheets or QuickBooks, both of which are still in use at many CPG companies.
Lack of ample IT staff is also hampering CPG companies’ ability to upgrade their current technology infrastructures and benefit from modern solutions. “In many cases, CPG companies are working with small IT staffs,” said Shawn Scanlon, GSI’s Executive VP, “and a lot of them have no desire to have much of any IT staff.”
A unified, cloud ERP supports these “lean IT” missions by providing a turnkey platform that needs little or no intervention on the part of the CPG firm. Taking even more pressure off its clients’ IT staff, GSI steps in to handle any administrative activities that the company doesn’t want to take on (NetSuite Managed Services), making the unified ERP completely turnkey and ready for operation.
Filling in the Critical Gaps
In most cases, today’s CPG companies rely on partially-integrated ERP solutions like Microsoft Dynamics GP and Sage. Most have fairly complex business requirements in place, and tend to augment their ERPs with spreadsheets and other manual approaches. Knowing that these “frankensystems” don’t provide the modern capabilities that they need to operate their global enterprises, CPG firms come to GSI in search of a full-blown, integrated ERP that works on the day that it’s switched on.
“Our CPG projects are always a bit large