The Perfect Order
While most companies realize the need to move to a demand-driven model, most lack the business process and acumen to truly make it happen. This month, Consumer Goods Technology sat down with Richard Douglass, Director, Strategic Business Solutions for webMethods, who shared insight on the consumer goods market and how smart companies should be aligning their businesses to become demand driven.
Consumer goods firms are challenged to get products to market faster and improve operating margins and cash flow. What tools are consumer goods firms implementing to improve the product lifecycle?
This is a particularly tough problem for consumer goods companies for a number of reasons, including short product life cycles; the uncertainty of customer demand and dependency on retailers for insight into the demand; and the numerous retailer distribution points that consumer goods companies have to be in sync with.
A recent statistic from AMR Research highlights that the consumer goods industry spends $100 billion annually on trade promotions, yet a promoted item is twice as likely to be out-of-stock. Today, if a consumer goods company wants to make money, it can't give away too much product in a promotion, have inventory it can't move or ever face a stock out.
Clearly, applications exist that are designed to streamline areas of a consumer goods company's business, such as replenishment planning and inventory management. What's missing, however, is an integrated platform upon which all of these disparate systems can be linked in real-time and monitored continuously, enabling consumer goods companies to improve productivity.
What steps can consumer goods companies take to streamline their internal communication to better manage this complex process? The first thing to recognize is that you have at least three distinct groups within your own organization that you need to be concerned about: sales and marketing, product development and operations.
But it's not only, or even primarily, internal communication that's the issue. The main communication issue is how to equip the entire trading network -- suppliers, distributors and retailers -- with the most current information at all times. This ensures that each part of the network has critical information around what product is selling, what product is in transit, what product still needs to be produced, to name a few.
I think it helps to envision the end state here. Think of the order-taking process as the focal point that links two very separate sides of the business: the planning or S&OP side and the execution or demand fulfillment side. It's not that S&OP and Demand Fulfillment haven't been loosely linked in the past, but today's hyper-competitive environment requires more dynamic, real-time interaction between the two in order to ensure that companies never lose a sale. The point at which a customer places an order should not only trigger fulfillment, but also a revaluation of replenishment plans to guarantee that the right product gets to the right place at the right time.
How should consumer goods firms tackle the creation of a consistent process to become more demand-driven? It's really interesting to see how various companies have tried to become demand-driven in the past: everything from lengthy Standard Operating Procedures to Visio diagrams of business processes. Although these are a step in the right direction, they typically receive little use after their initial creation.
What we are seeing now is that leading consumer goods firms are beginning to leverage business process management (BPM) tools in combination with service-oriented architecture (SOA)-based integration. BPM "digitizes" (automates) a business process like receiving orders. This provides the missing link between line of business folks and IT, and accelerates delivery of benefits to the business. With SOA-based integration, companies gain re-use through quickly deploying and adapting processes from one business unit to another.
We see numerous examples where companies struggle to better manage their business process. One consumer goods company ended up with extended product introduction time frames as a result of a shift to offshore manufacturing. The more complex manufacturing process resulted in variability that needed to be managed. This combined with a lack of a consistent process for tracking new product information resulted in variations within the process that were not being reflected back in a timely manner, leading to reduced operating margins. The company realized it needed an integrated platform that could deliver a formalized and effective process with suitable workflow management to reduce the time to introduce new products to market.
How can consumer goods firms enhance their ability to respond effectively to changes in demand, including real-time changes to product, price and promotion?
What's particularly exciting about becoming more responsive to changes in demand is not simply the standardization of a process, such as demand fulfillment, but the reusability of existing assets enabled by SOA. To do this effectively, businesses also need a single version of accurate product data.
Product Information Management (PIM) technology, which enables companies to establish a single, reliable source of product information that can be shared both externally with customers and trading partners and internally, is a tool being adopted more widely. Smoothly integrating PIM technology with improved business processes ensures rapid and accurate dissemination of information to internal and external audiences.
PIM is only the starting point in becoming demand-driven. One of the more powerful tools available today is Business Activity Monitoring (BAM). It allows you to monitor and be alerted to potentially disruptive events in real time. More sophisticated tools also automatically identify patterns, or what we call "fingerprints" of exceptional or unusual activity. BAM enables companies to anticipate and respond to problems before they impact the business. For example, after reviewing one major consumer goods firm's order-to-book, webMethods noted that the customer was spending a significant amount of time around manual monitoring of inbound transactions for various issues. These issues included missing data, wrong data, stuck and delayed orders. Leveraging BAM provides continuous monitoring, resulting in an "error-free booking process".
Consumer goods firms want to improve cost efficiencies, yet this should not be the driving business goal. How can companies align their business goals accordingly?
Cost cutting is always the easiest road to take. While improving cost efficiencies is clearly desirable, it isn't the end game. The issue with alignment is that you must have a clear understanding of causes and influences. Many companies have tried the balanced scorecard approach, where they identify financial, customer, operational, HR and IT metrics that they think are somehow related. Of course, the cost-related measures are always the easiest to track and roll up, so that's where companies often focus their attention.
But few companies take the time to validate the assumed cause-effect relationships. With advanced analytical tools such as BAM fingerprinting and statistical analysis, it is possible to draw better conclusions about what operational measures ultimately drive financial and customer success.
The end game in the consumer goods industry is clear: NEVER lose a sale. To make good on this goal, innovative consumer goods companies are deploying technologies such as BPM and BAM, and leveraging SOA, to ensure perfect order fulfillment. While consumer goods companies can't yet guarantee perfect order fulfillment, they are on their way, with the leaders placing their bets on an error-free booking process as the ideal starting point.