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Take a look down the aisle of a Whole Foods or Wal Mart and you’ll notice numerous options for the same type of product. Each may vary slightly in price and quality, but they’re similar. This has been a growing trend over the past few decades and it highlights the significant increase in competition in this industry. To be successful in the current environment, companies need to find cost-effective ways to manage operations, while delivering high quality and differentiated products.
In addition, companies operating in this industry face numerous other challenges, including uncertain demand, shifting tastes, operating at a profitable level, changing standards and regulations, and relying on the global supplier network, among others. In this blog, we’ll dive into some of the most pressing challenges for consumer products companies.
The consumer products industry, in the simplest term, consists of organizations that manufacture products that are used by the consumer. This includes subvertical industries such as Consumer Packaged Goods (CPG), Food and Beverages (F&B), Consumer Durable Goods, and tobacco. Below are specific and broad challenges faced by each:
1. Changing Consumer Demands: Today, consumer products companies need to be consumer focused. Demand has a tendency to fluctuate rapidly. For example, consumer preferences have altered greatly in recent years as demand shifts toward healthier and sustainable options. Consequently, manufacturing success is closely related to time-to-market and new product introduction (NPI) capabilities. Additionally, demand can fluctuate cyclically and with economic volatility. The success and profitability of any organization in this industry is heavily dependent on how effective these companies are at addressing the changing demands of consumers.
2. Shrinking Operating Margins: With global competition, companies are faced with the challenge of meeting global price points. This creates additional pressure, as manufacturers need to ensure the delivery of high quality products while finding innovative ways to cut costs. Companies also need to account for fluctuations in factors such as oil prices and their effect on transportation costs or petrochemicals which may be used for agrochemicals and packaging.
3. Compliance and Regulatory Pressures: The global regulatory environment is dynamic. Companies are faced with the challenges of mitigating operational risk and managing nonconformances. Creating additional pressures, as manufacturers rely on the global supplier network to battle shrinking operating margins, meeting international compliance and regulations becomes a factor.
4. Globalizing Economy: Leveraging the global supplier network is a means for reducing costs, however it does come with numerous risks in terms of compliance, product safety, and other areas. As one consequence, the 2011 U.S. Food Safety Modernization Act (FSMA) places considerable focus on upstream visibility. Although it will likely be years before FSMA drives significant change in U.S. food processing compliance, companies are beginning to prepare. Other subverticals, such as tobacco, are faced with globalization challenges such as counterfeited products.
5. Data Granularity and Visibility: With compliance and regulations becoming stricter, traceability functionalities are more pertinent and requisite than in the past. Consumer products companies need strong data granularity to reduce operational risk, properly respond to an adverse event with a targeted recall, provide high quality and compliant products, and avoid counterfeiting issues associated with global trade.
As many executives in the consumer products industry already realize, the 5 challenges highlighted are highly interconnected. For example shrinking operating margins are dependent on the globalizing economy and increased competition. To survive in these tough times, companies need to effectively assess the priority and criticality of these challenges, developing strategies to effectively overcome them.
Our President and Principal Analyst, Matthew Littlefield, will be giving a webcast on this topic on September 6. Matthew will note on how companies can address the challenges stated above by implementing Operational Excellence programs with a strong quality management component.
You might also be interested in:
Improving Food Safety: Insights from Mars' and Dole's Product Recalls
Manufacturing Operations Management: Lessons from Dell
Quality Management System: Building a Better Culture