Consumer habits changed in the past two years, and while people have returned to in-person shopping, many new habits have stuck. Channels and buying patterns have shifted, with consumers becoming more conscious of their spending as well as channel-agnostic, expecting a seamless in-store and online experience.(1) Consumer products companies need to adapt, as these new ways of buying are expected to stay.
Buying behaviors aren’t the only change—inflation, fuel prices, transportation issues, and hiring gaps are causing challenges. Companies are debating raising prices to cover costs. Transportation can’t keep up with the increased demand, and all parts of the business are dealing with personnel shortages.
The supply chain is also vulnerable and must become more resilient. Data from McKinsey shows that disruptions of a month or longer now happen every 3.7 years on average. This costs consumer goods companies four months of earnings every decade. (2) Organizations need a way to react faster to change and disruption.
The recent baby formula shortage highlights just how fragile the supply chain can be. As of mid-May 2022, out-of-stock levels hit 43% across the U.S. The Atlantic identified three causes for the shortage: a recall, supply chain issues, and regulatory policies. (3)
In February 2022, the U.S. Food and Drug Administration advised avoiding certain lots of three powdered formula brands produced in a Michigan plant after harmful bacteria was discovered. The producer issued a recall, and the plant was shut down and is not expected to reopen until July 2022.
Recalls aren’t that unusual. Closing a single plant should not have caused a nationwide shortage so quickly, but producers had a hard time planning due to the pandemic. Demand fluctuated wildly due to families stocking up in 2020 amid shortage fears and then working through their stockpiles without buying more. When sales fell in 2021, producers cut back, but now, demand is back up, but production isn’t.
The final contributing issue is government restrictions on imports. The FDA does not approve most formulas produced in Europe, and those that are approved are hit with high import taxes. This means just three producers dominate the U.S. baby formula market.
Technology cannot solve the trade restrictions, but it can help with better planning, compliance, and production efficiency. Better monitoring systems and a more resilient supply chain supported by real-time analytics may have prevented this shortage.
Overcoming Barriers to the Cloud
If cloud technologies can help prevent consumer product shortages, why aren’t more companies using them? Many companies might say they have migrated to the cloud already, but they’ve done so primarily to reduce IT and infrastructure costs. (4) They haven’t yet adopted more advanced technologies to help them become faster and more flexible.
Most consumer product organizations also haven’t invested in the talent and technology resources to get more value from the cloud. Therefore, it’s not surprising that two-thirds of consumer product executives said they haven’t yet achieved expected results from their cloud initiatives. (5) It’s a bit of a chicken-and-egg scenario, however. Executives haven’t made the investment, so they don’t see results. And they don’t see results because they haven’t made any investment beyond IT.
The same study cited that 46% of executives reported complexity of business and operational changes required for cloud adoption were a top barrier. Cloud tends to be thought of as an IT issue rather than a business issue. When the company as a whole isn’t aligned on cloud adoption, and departmental leaders outside of IT aren’t involved in planning, the transition likely won’t be successful.
The reverse is also true where business leaders procure a fancy cloud service but fail to partner properly with IT and security to ensure a successful transition. Organizations can’t just buy an off-the-shelf solution and magically be in the cloud. There are many departments, stakeholders, and systems involved, meaning a mix of internal and purchased solutions plus custom integrations are likely required.
Consumer product organizations need a solid plan for a successful and full migration to the cloud. Deloitte recommends three preliminary steps before deciding on the final process: (6)
- Classifying existing applications to decide which types would benefit most from modernization
- Identifying opportunities for simplification, such as applications with overlapping functionality
- Prioritizing applications to modernize based on the first two steps
The Cloud Will Open New Doors for Consumer Product Companies
When consumer organizations fully embrace the cloud, they are expected to reap a wealth of benefits, from bringing new products to market faster to lower costs. McKinsey predicts that digitally-enabled innovation will allow companies to bring new products to market 50 percent faster, at a third lower cost, and double the return on investment. (7)
How will this happen? Cloud can enable data and analytics insights in real-time. This allows for faster reaction time and better resilience. Companies can generate and test new concepts faster, supported by consumer insights. Changes in demand can be identified faster and even predicted, so companies aren’t hindered by market fluctuations.
Leveraging the Internet of Things (IoT) and operational technology (OT) can increase manufacturing efficiency. This can be accomplished through machine-to-machine communication which streamlines production lines, supply chain monitoring, picking optimization, and more. It can also identify needs for equipment maintenance early on, allowing maintenance to happen during scheduled downtime.
Cloud will enable the connected, autonomous supply chains needed to avoid future disruptions. PwC found that the payback period for investing in advanced supply chain capabilities, such as analytics and smart logistics, was just 1.8 years. (8) Digital supply chains can:
– decrease costs
– reduce inventory
– improve delivery reliability
– increase revenue
Scale is another benefit of cloud technology, whether by building cloud-native applications, adopting new technologies, or expanding existing offerings. It can also help businesses expand their reach and channels. More industries are shifting to sell products direct to the consumer, requiring changes such as the addition of eCommerce platforms.
Data-driven personalization is another opportunity for consumer products organizations to explore. Advanced technologies can make personalized products affordable for a much larger market. L’Oréal cosmetics created My Little Factory and can produce a personalized foundation shade for customers on-site in about 20 minutes. It scans the customer’s face to formulate the ideal shade and has been rolled out in select stores under the Lancôme luxury brand. (9)
Many cosmetic companies have also recently added shade finder technology to their websites that use the customer’s phone or laptop camera to assist in purchasing the right product online. Adopting this technology can increase sales—usually direct from the producer’s website—and reduce returns.
Digital is the future, from design to production to sales. While there are several challenges consumer product companies must overcome before they can reap the benefits, experienced help is available. Taos can help you grow and modernize your businesses, capitalizing on scalability, enhanced security, and cloud economics. Taos offers Advisory Services, Professional and Managed Services for Development, Data, the Cloud, and managed IT and Security Services to support your business needs.
Learn more at https://www.taos.com/industries/consumer/
Citations:
1 – The Pandemic Permanently Changed Consumer Behavior. Top 3 Retail Lessons for 2022., TotalRetail, February 2022
2 – Risk and resilience in consumer-goods supply chains, McKinsey, January 2022
3 – What’s Behind America’s Shocking Baby-Formula Shortage?, The Atlantic, May 2022
4, 5 – Soar through the cloud to drive growth in CPG, Accenture, February 2021
6 – Six cloud migration strategies for consumer products and retail, Deloitte, 2019
7 – The next frontier in consumer goods: Digitally enabled innovation, McKinsey, April 2022
8 – Connected and autonomous supply chain ecosystems 2025, PwC, 2020
9 – L’Oréal presents system for large-scale personalisation of cosmetics products, Fashion Network, May 2019