We have hardly seen the true potential of consumer packaged goods (CPG) industry in India. More so in the processed foods segment, which will grow many folds in coming years. CPG, however is a competitive industry. Margin pressure is reality. Difference between thriving or being a laggard is execution smarts.
An October 2015 Mckinsey study looked at 17 global leaders in the food and beverage industry over the period from 2009 to 2013 and found that operational improvement was the determining factor in margin growth
Operating intelligently across the chain of activities such as purchase, production, quality, sales and human resources is the key. Only way to execute smarter is to have an integrated system that improves the overall quality of execution.
No business is simple, however CPG has its own extra share of challenges in dealing with fluctuating raw material prices, perishability in most cases, product innovation pressure, large assortment of SKUs and market reach.
GMA (Grocery Manufacturers Association) and FPA (Food Processing Association) commissioned study says CPG industry’s large companies clearly show favorable Sales/COGS ratio vis a vis midsize companies compared with any other industry. Scaling up quickly is even more important here. Focus should be targeted collaboration, partnership and everything else to achieve quick scale and not spend energy on fire fight to run a small operation.
A robust, integrated proven system that establishes SOPs across the activity chain becomes necessary to avoid the fire fight and up the quotient in the market share fight.
Product innovation and smarter sales execution are two biggest differentiators for CPG brands. An ERP by itself cant’ deliver product innovation. However there are plenty of examples of great products not reaching enough retail shelves. If you have got a great product, you have to put it out there on every possible retail shelf that is available. In a country like India the battle is either won or lost in general trade channel with 85% market share across product categories. Brand owners who are able to combine the primary sales execution and trade promotions from a mature ERP system like SAP with a last mile retail coverage solution are making deep inroads.
Disclosure: Vital Wires Consulting is pure play SAP partner as far as its ERP work is concerned. However there are other mature ERP products, which are supposed to deliver similar results. Vital Wires is also promoter of last mile retail coverage mobile app platform BeatRoute.
References and interesting view points for CPG evangelists – 1) GMA, FPA and study on Financial Trends in CPG Industry 2) Operational Excellence and Margin - Mckinsey Quarterly 3) Top 10 most profitable consumer goods companies - Nasdaq Study