Previous article
Back
Process innovation is as vital as product innovation as CPG brands prepare for whatever comes next
Transformation and adaptation are now the norm for CPG brands. Whether it’s lingering supply chain issues, macroeconomic pressures, socio-political upheaval, evolving customer expectations, or the rapid emergence of new go-to-market models, change has become the status quo. The old times of predictable growth — or predictable anything — feel like a distant memory.
CPG brands understand they need to innovate to be ready for whatever comes next, so they can turn that next big challenge or opportunity to their advantage. But knowing where to start with that innovation is another matter altogether.
Product innovation is the go-to approach
It’s understandable that CPG brands would think about what they do first, and focus their efforts on product innovation. Figuring out what to produce today, and how to produce it tomorrow feels like a reasonable enough approach on paper. And there are certainly gains to be made in product innovation.
Appealing to cost-conscious shoppers: In a climate where the vast majority of consumers are still pulling back on spending, CPG brands are evolving product offerings to appeal to cost-conscious shoppers who are reprioritizing their budgets. They’re extending or consolidating product ranges around specific price points, altering pack sizes, and finding ways to compete with private-label brands.
Making products more inclusive: CPG brands are also looking to make their products more inclusive, so they aren’t necessarily designed to meet the unique needs of specific consumer groups and exclude others. The rise of gender-neutral beauty products is a great example.
Exploring sustainable materials: Increasing the sustainability of their products is also a high priority for CPG brands. With 80% of consumers prepared to pay more for sustainably produced goods, it’s well worth brands exploring recycled or recyclable materials and packaging.
But product innovation alone isn’t enough to prepare brands for the unpredictable road ahead. They also need to consider how their businesses run, and look for value opportunities in their operational processes.
For instance, there’s no point in CPG brands investing in low-cost product ranges for the holiday season if they can’t deliver them to retail stores in time to meet the demand from cost-conscious holiday shoppers. And there’s little to be gained from developing sustainable packaging if cash flow constraints prevent brands from rolling that packaging out across their product lines.
To get their operations ready for whatever comes next, CPG brands need to support product innovation with process innovation, investing in both areas in parallel.
Process innovation builds business resilience
CPG operations tend to be incredibly complex, made up of thousands of processes that are siloed in different systems and teams across the back office, supply chain, and customer service. And there are countless opportunities for improvement hiding within these interconnecting processes. What CPG brands need is the process intelligence to find and act on these value opportunities.
By strengthening and improving operations through process innovation, using technologies such as process mining, CPG brands can build readiness into their operations and create a foundation of process excellence. This enables them to react with speed, flexibility and confidence, no matter what the market throws at them. The brands that don’t take this approach, and stay stuck in survival mode waiting for conditions to improve, risk falling further behind.
Let’s take a look at three of the key ways CPG brands can benefit from process innovation:
1. Improving customer satisfaction
Customer satisfaction is a particular challenge for CPG brands because there are so many different customers to please. There’s a good chance they’re trying to keep wholesalers happy and battling for retailers’ shelf space, as well as fighting for the attention of the end consumer. And it’s vitally important that customers are satisfied because in a competitive market where switching is simple there’s always another brand waiting to step in if any of these customers don’t get what they want.
Streamlining and improving operational processes can help CPG brands to deliver on customer promises — and therefore improve satisfaction — in a variety of ways.
One example is ensuring planning parameters such as production and supplier lead times are kept up to date. With frequent supplier changes and production developments, keeping these parameters current means order management teams can set realistic customer expectations based on the latest data, and that as many orders as possible can be delivered on-time-in-full (OTIF).
Take a look at our customer story to find out how CPG giant Reckitt uses process mining to streamline order management processes and boost on-time delivery. Or tune in to this webinar about Reckitt’s Order Management transformation.
Another example is helping the supply chain team deal with delays and stockouts. These are — to some extent — unavoidable, but there are still ways process improvements can reduce their impact. First, stockouts can be resolved by identifying alternative sources of stock or substitutes within operations in real time. If this isn’t possible, flagging unavoidable stockouts or delays with customer service teams means they can proactively reset customer expectations and deliver a more positive customer experience.
2. Increasing operational efficiency
Cutting operational costs and increasing productivity across processes is a great way to increase efficiency and ready operations for whatever the future holds, especially in an environment where overall costs are escalating. It may seem like small changes to individual processes won’t make much of a difference, but acting on hidden value opportunities can have an enormous impact on high-level KPIs such as cost of goods sold (COGS) and general operational efficiency.
There are almost limitless places to start when looking for opportunities to increase operational efficiency. Techniques such as object-centric process mining (OCPM) can help CPG brands gain end-to-end visibility across multiple systems and departments, and prioritize the most impactful opportunities that will drive the greatest value.
This might mean starting with the procurement team and helping them to automate manual tasks or to eliminate purchase order rework, which increases productivity and reduces process costs. Or it may mean beginning with the supply chain team and helping them with load consolidation to both increase efficiency and hit their ESG targets. Once you've addressed individual processes, you can expand to identify opportunities across processes, such as minimizing idle time between make and deliver, or ensuring the paths taken to create a finished product are running as expected.Either way, end-to-end visibility will help to join the dots between processes and see the impact of a small change in one area across the rest of the business.
For example, an iconic retail brand is leveraging process mining technology to manage their logistics process from dock to stock to carrier performance. By accurately predicting when shipments will arrive, store managers can better plan staffing.
The finance department, and accounts receivable (AR) in particular, is often identified as the best place to start when cutting costs to increase operational efficiency. This might include exploring how discounts are offered, so this process can be improved and unwarranted discounts can be eliminated.
Check out our Celonis World Tour chat with Mars to find out how the business uses process mining to gain visibility into deductions, minimize leakage, and enforce greater control and compliance across its AR department.
3. Optimizing working capital
Nothing sets a business up for success like healthy free cash flow. Whether CPG brands are responding to the latest market disruption or seizing the next big opportunity, strong free cash flow puts them in a great position to turn the situation to their advantage. And working capital is a key lever they can use to quickly free up cash.
Finding and actioning hidden value opportunities within financial processes can accelerate a brand’s cash conversion cycle, by both maximizing days payable outstanding (DPO) and minimizing days sales outstanding (DSO).
In accounts payable (AP) for instance, brands can ensure they’re applying the right payment terms to the right invoices so that payments are made in time to benefit from any cash discounts, without being made earlier than necessary. At the same time, in AR, brands can identify likely issues or disputes before invoices become past due, and can streamline and intelligently prioritize collections based on data-driven insights.
Watch our video to discover how PepsiCo is freeing up millions of dollars in working capital by collecting customer payments faster and improving its AP processes.
Preparing for the road ahead
With an unpredictable future in front of them, CPG brands need to be prepared to capture and capitalize on growth opportunities as they emerge, while also dealing with the inevitable disruptions that will come their way. By addressing the how as well as the what, and supporting product innovation with process innovation, they can make sure their operations are as much of a competitive advantage as their products.
More blog posts on Process in Practice
