New study says consumer goods manufacturers must embrace technology, innovation

In order for consumer packaged goods (CPG) manufacturers to survive and thrive amidst the explosion of e-commerce, online advertising and digital technologies, they must comprehensively re-evaluate their use of technology and innovation.

The advice comes from new research recently released by The Boston Consulting Group (BCG) and the Grocery Manufacturers Association (GMA).

The benchmarking survey, called “Navigating the New World of IT in Consumer Packaged Goods: GMA Information Technology Benchmarking 2015,” shows that CPG companies vary widely in how much they spend on IT. The report also reveals different patterns and strategic choices that distinguish the IT-spending approaches of CPG companies and delves into the adoption of Software as a Service (SaaS) and Agile methodologies.

“We were surprised by how few IT innovation practices are being used by CPG companies,” said Ashwin Bhave, a BCG partner and coauthor of the report. “There are a number of low-cost, no-regret moves that can be made by CPG CIOs to stay ahead of the curve and create enormous value for the business.”

ARKANSAS CONSUMER GOODS VALUE HITS $6.2 BILLION
In Arkansas, CPG companies that produce food, beverages and consumer packaged goods make up the lion’s share of the state’s nondurable manufacturers whose factories roll out “soft goods that typically last fewer than 3 years.”

According to latest data from the U.S. Bureau of Labor Statistics, Arkansas has the nation’s highest share of nonfarm employment in the nondurable goods manufacturing sector at 6.4%. The state’s most recent unemployment show Arkansas all of the state’s 1,200 manufacturing job losses in November came from the state’s nondurable manufacturing sector, which is now down to only 77,600 nondurable jobs after peaking at 115,200 in August 1995.

Overall, nondurable manufacturers make up about 51% of the state’s manufacturing sector. The durable goods manufacturing sector, which produce “hard goods” like car parts, electronics and washing machines, make up the other 19% of the state’s 151,700 jobs. That sector has seen 4,000 job cuts through the end of November, and is now down to only 74,100 workers.

According to the Grocery Manufacturers Association, the $2.1 trillion food, beverage and consumer packaged goods industry employs 14 million U.S. workers, and contributes more than $1 trillion in added value to the nation’s economy. In Arkansas, the food and beverage industry contributes at least $6.2 billion annually in value added to the economy, employing at least 42,782 people, and operates 275 facilities.

In recent years, much of the state’s nondurable manufacturing growth has come from the so-called “Food Corridor,” a stretch of highway between Jonesboro and Blytheville that links several major food manufacturers. The companies include Frito Lay – which recently announced a $45.7 million expansion at its Jonesboro factory – as well as Butterball, Post and Nestle.

PRODUCTIVITY PRACTICES SUGGESTED
To improve productivity and efficiencies in the consumer goods manufacturing sector, the benchmarking survey released by The Boston Consulting Group and the Grocery Manufacturers Association identified best practices of IT innovation leaders. They include:
• Funding a wide variety of technology-enabled business capabilities. IT innovation leaders run broadly scoped IT budgets, investing in technology-enabled business capabilities such as consumer websites and mobile apps, e-commerce technology and content management, SaaS solutions, and analytics.

• Experimenting with cutting-edge technologies. IT innovation leaders experiment with a wide variety of new technologies such as responsive web design, non-relational databases, and micro-services.

• Embedding technology solutions across the entire business. IT innovation leaders invest across the full spectrum of business processes, such as supply chain, finance, marketing, information management, and manufacturing.

“The challenges for CIOs trying to manage IT costs while driving innovation are intensifying,” said Jim Flannery, senior vice president of operations and industry collaboration at GMA. “The CIO has the best vantage point from which to evaluate broad corporate needs in light of industry disruption and formulate a future-focused technology strategy. This study will provide a useful starting place for that work.”

The research also found that 41% of CPG companies surveyed were “suboptimal operators,” with high IT operating expenses and low levels of innovation. CIOs in this position need to pursue a two-pronged strategy: first, systematically review all IT costs to reduce core spending; second, collaborate with executive management to develop a pragmatic innovation agenda.

Further findings show that SaaS (software-as-a-service) solutions are rapidly replacing PC-based software installations at many CPG companies — with an increase of up to 28 percentage points in the share of SaaS since 2013. However, the industry has been slow to adopt Agile or evolving software development methodologies. Just two in 10 participating companies use Agile in more than 30% of their IT projects.