The way people buy has shifted over the past decade and it’s created ripples within the consumer goods space and supply chain. We’re seeing upstarts grabbing market share from established brands, in-store business losing ground to ecommerce and other direct-to-consumer business models, and one-size-fits-all give way to product personalization and customization.
All this adds up to complexity within the supply chain. Consumer goods companies and their external manufacturing and packaging suppliers need to reinvent their business to capitalize on market opportunities.
Here are some of the key areas that must be addressed:
Changing expectations have empowered the consumer to reject old patterns. Millennials and Gen Zers shop differently than their parents, preferring to interact with brands online and driving whole new channels of commerce.
Digital is revolutionizing how consumers learn about and engage with brands and how companies learn about and engage with consumers. Yesterday’s marketing standards and mass channels are firmly on the path to obsolescence.McKinsey & Company, 'A New Model for Consumer Goods'
Established names are combatting a wave of bad publicity about various issues: labor inequities, overseas outsourcing, questionable ingredients, health advisories, environmental and social impacts, and product recalls. Meanwhile, a new generation of values-aligned brands tout their ethical (e.g., fair trade.), artisanal (e.g., craft beer), healthy (e.g., organic), and environmental (e.g., natural cleaning products), and locally sourced street creds.
Consumer goods companies must come to terms with change and respond to the challenge posed by newcomers by preparing themselves for a period of major disruption. Recognizing that old ways can no longer serve, and retooling of traditional categories is vital.
CPG giants from Procter & Gamble to Coca-Cola are cutting costs to drive profit as they redesign products or acquire startup and other higher-growth labels.eMarketer Retail’s 2017 report
Perhaps the most apparent change is demand for product differentiation, creating seismic waves in the consumer goods world. It’s given rise to entirely new product categories, swelling catalogs of SKUs, and an almost infinite number of niche markets.
Modern consumers diverge between two camps. Some demand highly personalized products and are willing to pay a premium for something unique. They desire a more intimate connection with the brand, and so the product and packaging must communicate luxury, superior quality, or upmarket status.
In many other cases, though, there is great appeal for value brands. This group of Millennials and Gen Zers are unimpressed or even antipathetic toward the markups that traditional brand names tend to carry. A study by Pricewaterhousecoopers noted these two extremes and termed them selectionists and survivalists.
Armed with this information, retailers and brand owners must dissect how their line of products serve these two very different consumer streams. They must devise formats and online channels to cater to each stream, as well as the many niche categories that lie within them.
While many have already embraced some degree of customization, the sheer number of subcategories demanded by the marketplace drives the need for late-stage customization to be more responsive.
Hyper-specialization, and ever-evolving niche categories demand supply chains that are nimble enough to change suddenly and robust enough to manage the complexities of an orders-of-magnitude jump in SKUs and product categories, as well as shorter runs and innovation cycles.
And while those initiatives were historically driven by efforts to get ahead of the competition, in today’s market conditions, they are table stakes. Brand owners today that lack network capabilities to interact and transact in real-time with their suppliers are struggling to respond to market demands.
What is required for brands to survive today is creating a multi-party business network of strategic partners that can go from “concept to consumer” with agility.
While brand owners continue to identify improving costs and operational efficiencies as important drivers in their decisions for using external manufacturers, they now consider improving agility/flexibility the primary factor driving manufacturing outsourcing decisions. Gartner, 'Optimize External Manufacturing Relationships by Focusing on Talent & Competency Requirements'
Brands, contract manufacturers, contract packagers, and third-party logistics companies all need to operate within an agile customization network to deliver the right product at the right time through the right channels.
Brands, then, must get serious about driving for this level of visibility and control over their supply chain. Tight collaboration must be instilled into every stage of the consumer products lifecycle from initial ideation of through all aspects of manufacturing, packaging, and distribution.
This will be the hallmark of success for consumer goods companies and their suppliers.