A recent McKinsey report about the consumer packaged goods (CPG) industry shows that larger brands are faltering while smaller brands are becoming the new growth engines. Large CPG brands, which represented 50 percent of total industry revenues in 2016, accounted for only 25 percent of value growth between 2016 and 2020. Meanwhile, smaller brands, which contributed just over 30 percent of 2016 revenues, provided 45 percent of value growth in the same period. (Private labels account for the rest of the growth.)
What’s going on here? What’s behind the recent strength of small brands? McKinsey identifies 12 trends that are disrupting the CPG market and contributing to this shift. These include market trends such as the mass consumer adoption of digital media, Millennial and Gen Z purchase preferences, and the rise of conscious eating and living. They also include selling channel trends such as the growth of e-marketplaces.
If you’re a small to mid-size business in the CPG industry, this is great news. There is a market shift in your favour that you can capitalize on to grow your revenues, market share and profitability.
The question is, are you ready for it?
There are many things to ponder as you attempt to answer that question. Being “ready” can involve everything from digital marketing to digital customer support channels. It can include supply chain management, smart manufacturing, smart distribution and business intelligence.
Let’s focus on smart manufacturing, which is increasingly important for the overall competitiveness of CPG brands. Here are some things to consider if you’re wondering whether your smart manufacturing roadmap is setting you up to ride the next growth wave—or be submerged beneath it.
Get ahead of the automation curve
Depending on the size of your business, you may not be very far along the adoption curve for industrial automation yet. Automating inefficient processes—think of the manual, repetitive tasks in your current operations—may be a short-term goal, while building a completely self-driving factory may be a distant ambition. Wherever you are in your digital transformation process, the upfront investment in automation technologies may seem cost prohibitive; however, running outdated equipment and manually performing easily automated tasks are also costly, especially as they limit productivity and efficiency gains and increase the likelihood of human error.
Automation improves productivity, which also increases capacity and allows you to increase production on existing lines or introduce new lines.
As a next step, consider carefully which production processes would best benefit from automation and build the business case to make it happen.
Start harnessing your operational data with IoT
Closely related to automation is what we call internet of things (IoT) solutions. By automating plant-floor processes, you also generate a lot of new data. Traditionally, the data from a piece of robotic equipment might have been stored in an on-premises database that was difficult to integrate with data from other equipment and business systems. Thus, the business value of that operational data was limited.
Industrial IoT is changing all that. The building blocks of IoT include smart sensors, internet connectivity (often Wi-Fi or cellular networks) and cloud-based applications that capture, manage and analyze all the data. IoT sensors can often be easily added to existing equipment to gather data for real-time monitoring applications as well as reporting and analytics purposes.
IoT solutions can support many business goals, including operational efficiency, workforce productivity, planning, scheduling, workplace safety and more. Common use cases include:
- Machine health: enable preventive maintenance of your equipment and avoid costly production downtime.
- Temperature monitoring: improve food safety and simplify compliance reporting with cold storage monitoring and alerts.
- Asset tracking: keep track of the location, condition and status of equipment, materials and inventory, both in the shop and in transit.
Before you implement a solution like the examples listed above, ensure you have the right data infrastructure in place to handle all the data your IoT systems will generate.
Engineer a smarter data infrastructure
By automating previously manual processes and connecting equipment, materials and products to the internet, you will quickly generate masses of data. These data sets are valuable assets that can help you better run your CPG business. Do you have the backend architecture and infrastructure necessary to store, secure, organize and manage this data? Who in your organization (including employees and third parties) is accountable for building and maintaining this infrastructure?
Smart manufacturing is heavily dependent on clean, structured, secure and available data, so make sure this aspect of your IT management is in place.
Your data engineer will focus on ensuring you have the right data warehouse (among other things) to support your smart manufacturing strategy. It’s data engineering that helps ensure all your plant-floor equipment can communicate with each other and with other business systems, such as your ERP. And it’s data engineering that helps ensure you have the reporting and analytics you need to run your business.
Focus on insights, not reports
Speaking of reporting and analytics, they’re clearly essential to running your operations and are an important aspect of smart manufacturing. You need to understand how you’re performing against your KPIs on a per-shift, daily, weekly, monthly, quarterly and annual basis. You also need to know what parts of your manufacturing process might be holding you back and where you have opportunities to become more efficient or productive.
Don’t automatically assume you can get by with the out-of-the-box reports available with whatever management software you’re using. It’s important to assess your actual need for business intelligence (BI) against the reporting available to you and fill the gaps with custom analytics.
Once you’ve invested in the right IoT manufacturing solutions, data infrastructure, BI tools and analytics expertise, you should be able to generate highly visual dashboards and reports that allow you to understand your business’s past and present performance and predict how effectively you’ll compete in the future.
Ready, set, go!
Smaller CPG brands have an exciting opportunity to grow and prosper, harnessing changes in consumer behaviour and innovations in smart manufacturing. If you want to seize this chance, start making smart investments in your operations and IT infrastructure to prove you’re small but mighty and poised to win.