As the demand for tailored products continues to surge, the race is on for IT to get consumer goods to market faster.
At their local EDEKA grocery store, customers may have noticed they can now buy ready-made packages of mymuesli breakfast cereals — something of a novelty as mymuesli’s business model is all about letting the customer design their own individual cereal mixes. That approach generally works best for the Passau, Germany-based company by selling to the customer directly in its Web shop. The packages being sold through “middle men” like EDEKA, on the other hand, are “mainstream” mixes – those intended to satisfy the tastes of as wide a public as possible.
“We are trending more and more toward the segment of one,” explains Wolfgang Wagner, director of the Consumer Products Industry business area at SAP. “You no longer have that one single product that everyone is flocking toward.”
In short: the producer market is turning into a consumer market.
KPMG: Customers Want Custom Products
Consulting firm KPMG came to the same conclusion in its latest Consumer Barometer. According to the analysts, 54% of consumers queried were more interested in customizable products than mass market offerings; 60% said they had had already configured foodstuffs to their personal preference; and 40% expect companies to offer more personalized products in future. Only one in four were not interested in individualization.
This market trend is having an impact, transforming product lines: As the demand for a personalized user experience increases, manufacturers are churning out a ever wider range of offerings, in ever smaller lot sizes.
“Retailers aren’t necessarily selling more quantities of muesli, milk, beer, or whatever. What they are selling is a greater variety of those products,” explains Wagner.
That means the number of deliveries is going up as well, with smaller quantities per shipment. Gone are the days of a single delivery containing a thousand packages.
The dilemma: Despite the plethora of new products and different packaging and palletizing requirements as a result, IT systems still have to be able to get those products out the door and to the customers reliably and efficiently.
“System performance – in other words, speed – is becoming ever more important in this process,” says Wagner.
The experts at KPMG agree: Manufacturers need to adapt their production processes to the smaller lot sizes – albeit at their own expense. Summing up, IT innovation is crucial to stay competitive, but it’s not a sure-fire guarantee for higher revenue.
Individualization Means Different Products, Not More
A CIO’s challenge is to decide whether or not to give the user department the freedom to proactively create new article numbers with different palletizing in order to launch new products onto the market quickly.
“This freedom can quickly lead to the systems no longer being able to cope with the performance requirements,” explains Wagner. And he adds that even if IT does optimize these processes, it doesn’t necessarily mean you’ll sell more product.
Still, manufacturing departments do not have a lead time of several weeks to react to new requirements – to avoid losing the business opportunity, they have to react immediately. Wagner already has the impression that “the share of small manufacturers is growing, and that the high-volume market is cannibalizing itself into a niche market.”
Case in point: the brewing industry, where specialty craft beers are the order of the day. Established breweries such as Radeberger, should have no problem thinking in smaller units. Should the craft beer sector develop into a lucrative and core business, it can easily be integrated into the sales and marketing processes, with recipe development and material data managed centrally.
One thing is for sure: with the product mix shifting more toward mixed, specialty, and non-alcoholic beverages, the percentage of “pure full beers” continues to decline steadily.
SAP S/4HANA: Identify Demand, Create Forecasts, Keeping Inventory to a Minimum
IT is facing new requirements, which it must reflect in its systems.
- Know the needs: Companies have to be able to recognize the needs of their customers early on. They need to analyze sales as precisely as possible, spot trends, and use social media to capture market sentiment and understand consumer requirements. Only then will they be able bring appropriate, tailored products to market early enough.
- Avoid bottlenecks: The faster the products change, the more important it is to be able to reconcile and adjust target and actual figures. Breweries need to know in advance if they have enough empty bottles available for upcoming production, for example. The “classic,” standard-issue beer bottle is slowly disappearing as breweries turn more and more to unique designer bottles. This in turn makes it more difficult for other brewers to find enough empties for their own product. “You have to pre-order the glass for custom-design bottles 18 months in advance,” says Wagner.
- Simplify ordering: Since real-time systems can detect bottlenecks and requirements, the next step is to turn that insight into action. At best in no time at all. If your inventory starts getting low, you can select suppliers and reorder materials using the same “Insight-to-Action-Panel.”
Amazon Fresh Puts on the Pressure
Amazon Fresh shows that it’s worth having this new transparency available in the systems in real time. Food producers seeking to sell their products through Amazon’s food delivery service are required to supply online retailers with product data at high speed.
“You can’t just wait around for the nightly batch run,” explains Wagner. If you want to be successful, you have to be prepared. Instead of joining Amazon Fresh, some companies in the industry such Radeberger have taken to refining their own, comparable delivery models.
Those that include SAP S/4HANA in their approach stand to benefit. Food retailers in Germany currently make just one percent of their turnover with products they offer online. This is quite meager in comparison to France and England, for example, where online business accounts for six and eight percent of revenue respectively. So there’s still plenty of room to grow online.
Don Gordon, global marketing director of the Consumer Products Industry at SAP, explains the benefits of the SAP S/4HANA solution in three short videos:
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