CPG manufacturing in the digital age

But it is putting new pressures on consumer packaged goods (CPG) manufacturers, and is just one of the many challenges they now face. CPGs have to operate in a fast-moving, highly competitive market that increasingly relies on multiple delivery channels, is innovating up and down the supply chain to shorten production and delivery cycles, and is adopting smart technologies to facilitate real-time inventory and advanced analytics to enhance customer relationships. To keep up, CPGs need to become more aggressive in their omnichannel strategies and much more granular in their supply chain management. And they have to better understand and relate to consumer demand. Engaging consumers on their terms is not a nice-to-have but an imperative for survival.

The good news is that manufacturers have more tools at their disposal to tackle the challenges, improve operations and ultimately thrive. This paper considers the variety of changes affecting CPG manufacturing and the strategies and technologies CPGs can employ to respond.

What’s changing

For some time, industry visionaries have painted a cheery picture of “Manufacturing of the Future” — tales of an infinite variety of consumer products custom-made on demand from machines that worked like replicators on the Starship Enterprise. Press a button, get a mug. Press a button, get a bicycle.

In some respects, that’s happening. While limited in scope and capability, 3D printing is making good on the promise of instant manufacturing. E-commerce and bespoke technology that uses automation are making custom-made products easier to obtain, especially in areas where customization has been a tradition, such as clothing.

The expectation of building everything for a market of one may have diminished a little, but consumers still expect to get what they want, when they want it. Those expectations stem from the explosive innovation that’s happened at the consumer end of the supply chain. E-commerce continues to grow at double digit rates annually as consumers have become utterly addicted to online purchases and doorstep delivery.

Traditional brick-and-mortar retail channels, though challenged by the rise of e-commerce, aren’t standing still. As highlighted in a recent IDC report, modern retail stores are integrating omnichannel strategies and technologies to create more intimate and engaging shopping experiences for customers on their path to purchase.¹ Geomatics and smart-shelf technology, for example, are delivering new levels of customer insights for retailers and manufacturers, which will invariably lead to more variety in product and packaging options.

Innovation at every point in the supply chain, especially upstream, is accelerating change. A product development process that once took 5 years might be completed in 5 months or 5 weeks today. Product life cycles have shortened from decades to years, to months. Acceleration can exacerbate trouble spots elsewhere in the supply chain and create bottlenecks further down the supply chain, including right up to the front door of the manufacturing plant. Furthermore, increasing numbers of orders from a growing number of channels put even more stress on manufacturing.

All of these changes are redefining what “success” means for producing goods. Manufacturers must still drive the optimal utilization of line equipment, maintain uptime and reduce production costs. But they also must now accommodate more variety in order size, more variations in product size and packaging, and more frequent updates to product designs. They need to rethink distribution and fulfillment strategies, taking into account the different pricing and delivery timelines in direct-to-consumer models and same-day shipping. They need to package products in more ways; i.e., attractively-packaged goods for retail, easy-to-handle packaging for e-commerce fulfillment channels. Often, they need to produce and manage different stock-keeping units for different channels.

It’s clear that something needs to happen. As manufacturers look to keep their schedules, contain costs and maintain quality, the old way of doing business won’t be enough to remain competitive. Manufacturers need to get smarter and more agile.

Agile manufacturing is made possible by the development of manufacturing support technology that allows the marketers, designers and production personnel to work together more effectively, developing products with a common database of parts. Together, the team can identify potential production and quality issues before they surface during the manufacturing process. Finding and fixing problems early are significant time- and cost-saving benefits.

Manufacturers are developing an agile response in other ways as well. Distributed and contract manufacturing offer companies a way to quickly bolster production or build a new item without building new manufacturing capability. This can be especially appealing as product development cycles shrink and variation grows. It’s also useful for outsourcing elements such as packaging, especially as the diversity of packaging needs grows. Manufacturers on the path to becoming more digital in operations will be better able to coordinate an ecosystem of manufacturing and packaging partners to meet variations in demand.